Ace Group – Tax Alert 1/2020

TURNOVER TAX (TOT)

The turnover tax was re-introduced in the Finance Act 2019 effective 1^st January 2020 with similar regulations previously applied.

Notable changes are;

• Monthly submission of the TOT returns by 20^th of the following month.
• Presumptive tax is still applicable in addition to the TOT
• Presumptive tax can be claimed as a credit against TOT payments.

Previous regulations include;

• 3% TOT on gross turnover. No expenses deductible.
• Gross turnover should not exceed 5 million a year.
• TOT does not apply to Limited Companies, Employment Income, Management Income, Professional Income, Rental Income, and VAT registered individuals or businesses with over 5m turnover a year.
• Commissioner approval is required to remain in the normal income tax regime.
• Late submission penalty – Kshs. 5,000 for each month.

PRESUMPTIVE TAX (PT)

Presumptive tax remains at 15% of the single business permit.

Notable changes as a result of the Finance Act 2019;

• PT is no longer a final tax.
• PT can be claimed as a credit against TOT payable.

Previous regulations that are still effective;

• Payable by individuals to whom a business permit or a trade license is issued by the County Government.
• Payable at the time of payment for the County Government business permit or trade license.
• Commissioner approval is required to remain in the normal income tax regime.
• PT does not apply to Limited Companies, Employment Income, Management Income, Professional Income, Rental Income and VAT registered individuals’ or businesses with over 5m turnover a year.
• Late submission penalty – 5% of the PT due.

FINANCE ACT – SUMMARY OF TAX CHANGES

• Income earned by an individual in the Ajira Programme is exempt from tax for the first three years on set criteria.
• The amount withdrawn from the National Housing Development Fund to purchase a house by a contributor who is a first-time homeowner is exempt from tax
• The amount of affordable housing relief shall be 15% of the employee’s contribution but shall not exceed KES 108,000 per annum.
• Plastics recycling plant will be entitled to a reduced corporate income tax rate of 15% for the first five years upon commencement of its operations.
• Import Declaration Fee (IDF) to 3.5% of the customs value of goods imported for home use.
• IDF reduced to 1.5% on the customs value of raw materials imported by manufacturers, approved imports by the CS and input for the construction of homes under the affordable housing scheme approved by CS.
• Railway Development Levy (RDL) from 1.5% to 2% of the customs value of goods imported for home use.
• Withholding VAT reduced to 2%.
• Non-registered persons importing taxable services will now be required to account for reverse VAT.

Excise Duty rate changes

Excise Duty rate changes – Other items (Sin Tax)

INDIVIDUAL TAXATION

A person is considered to be tax resident in Kenya if they:

• have a permanent home in Kenya and were present in Kenya for any period in a particular year of income under consideration, or
• do not have a permanent home in Kenya but were:
  • present in Kenya for 183 days or more in that year of income, or
  • Present in Kenya in that year of income and in each of the two preceding years of income for periods averaging more than 122 days in each year of income.

Individual Tax Bands and Rates

Monthly Pay Bands-1st January 2018	Annual Pay Bands-1st January 2018	Rate of Tax
1     –       12,298	1 – 147,580	10%
12,299   – 23,885	147,581- 286,623	15%
23,886   – 35,472	286,624 – 425,666	20%
35,473   – 47,059	425,667 – 564,709	25%
Above 47,060	Above 564,710	30%
Personal Tax Relief
1,408.00	16,896.00

• Residential rental income – 10% of gross residential rental income received payable monthly before the 20^th of the following month. Annual gross residential rental income should not exceed 10 million shillings.
• Life, health and education relief is 15% of the premium paid but cannot exceed Kshs. 60,000 p.a
• Affordable housing tax relief – 15% of gross emoluments at a maximum of Kshs. 108,000 p.a (Starts at time of application and awaiting allocation of a house under the affordable housing scheme)

• Mortgage interest on the owner-occupied house at a maximum amount of Kshs. 300,000 p.a is deductible
• Gratuity and payments to a registered pension scheme are deductible to a maximum of Kshs. 240,000 p.a but cannot exceed 30% of the emoluments.
• A homeownership savings plan – Contributions not exceeding Kshs. 96,000 p.a is deductible.
• Bonuses and overtime paid to low-income earners is tax-free.
• 2,000 per day allowance for traveling for an individual outside his normal place of work is tax-free.

TAXABLE EMPLOYEE BENEFITS

• Motor vehicles benefit taxed at 2% of the cost of the vehicle or the prescribed rate; whichever is higher.
• Telephone and mobile is taxed at 30% of the cost to the employer
• Furniture – 1% of the cost to the employer
• Housing – higher of the market rate or actual rent paid or 15% of total employee income.
• Employee loans are subject to Fringe Benefits Tax (FBT)

MONTHLY NHIF CONTRIBUTIONS

Changes in NHIF Regulations;

• Limit cover to a maximum of one spouse and five children
• New members will have to wait for 90 days before accessing services or benefits in addition to making a one year upfront payment within the 90 days waiting period.
• Late payment of contributions will attract a fine of 50% of the monthly contribution and a requirement to pay one year in advance. Benefits and services will be restricted for a period of 30 days.
• Defaulting for more than 12 months will require re-registration and benefits and services can only be accessed after 90 days of resuming payments. A one year upfront payment will be required.
• Access to specialized services shall be restricted to 6 months waiting period following card maturity for new members.
• Access to maternity benefit will be restricted to 6 months waiting period following card maturity for both principal members and spouse declared.
• Any dependent declared after registration shall be subject to the 6 months waiting for the period for specialized and maternity services.
• For inpatient and medical outpatient, additional dependents will be eligible for the benefit apply after 30 days waiting period. The same applied for a change of spouse.
• Government-funded programs like free maternity, health insurance subsidy, elderly persons with severe disabilities and Inua Jamii have been exempted from these changes