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On 25th March, 2020, the President of Kenya announced a number of tax reliefs which he said were aimed at cushioning the economy against the adverse effects of the Covid-19 pandemic.

These tax reliefs have been encompassed in the Tax Laws (Amendment) Bill, 2020 which is to be presented to parliament for discussion in a special sitting to be held on 8th April, 2020.

Below are the highlights of the proposed changes.




The Finance Act, 2019 saw the reintroduction of Turnover Tax (TOT) under section 12C. The tax was reintroduced as a tax mechanism targeting small and medium enterprises. It is payable by residents monthly on gross sales and is a final tax.

The Tax Laws (Amendment) Bill 2020 (hereinafter the “Bill”) proposes an amendment to section 12C(1) of the Income Tax Act to adjust the value of a business’s turnover that is subject to the payment of Turnover Tax(TOT).

If the amendment passes it will have the effect of introducing a lower limit and increasing the upper limit (currently at Shs. 5,000,000) of business turnover which is subject to payment of TOT. Businesses making turnover of less than Kshs. 500,000 will not be subjected to payment of TOT but any business making a turnover of between Kshs. 500,000 and Kshs. 50,000,000 shall be required to pay TOT.

The amendment law has also proposed a reduction of the rate of TOT to 1% from 3% in line with the President’s Covid-19 directives.

The Bill further proposes the deletion of Section

12C(3) which provided that TOT would not apply to the income of incorporated companies. The effect of this is that corporate entities whose turnover falls within the newly proposed threshold will remit TOT as a final tax unless they elect not to be subject to payment of TOT in which case they will remit corporate tax.

This will serve the purpose of alleviating the tax burden as corporate entities whose turnover currently falls outside the Shs. 5,000,000 limit but who will now fall within the new limit will pay a lower rate of tax under TOT than they would under corporate tax. It will also serve to simplify tax compliance as TOT is payable on gross sales and therefore the tax payer will not have to grapple with the question of what are allowable expenses under the Act.

The Bill also proposes the deletion of section

12C(5) and 12C(6) of the Income Tax Act which

will have the effect of doing away with presumptive tax which was previously retained despite the introduction of TOT.


The following allowable expenses under section

15 are proposed to be made disallowable:

  • 30% electricity rebate
  • An entrance fee or annual subscription paid to a trade association which has elected to pay tax, meaning subscriptions to trade organizations are now disallowed.
  • Legal and other costs incurred on the issue of shares or debentures to the public and listing on a securities exchange in Kenya without raising capital.
  • Club subscriptions paid by an employer on behalf of an employee.


The Bill proposes deletion of section 22C of the Income Tax Act which provides for Home Ownership Savings Plans (HOSP).

HOSP was introduced in 1995 as an instrument aimed at first time homebuyers, where savings with a Registered Home Ownership  Savings  Plan  for  a  maximum  of ten-years allows the subscribers tax rebates of up to Kshs 8,000 per month or Kshs 96,000 annually and tax relief on interest income of up to Kshs 3,000,000 after the ten-years.

The Bill further proposes deletion of paragraph 44 of the First Schedule to the Income Tax Act which will do away with the exemption from payment of income tax on income of a registered HOSP.

It is unclear why the deletion of these provisions have been proposed as they ultimately go against one of the pillars of the big four agenda, affordable housing.


Paragraph 36 of the amendment law is proposed to be amended to ultimately do away with all the exemptions to payment of Capital Gains Tax provided under that paragraph except that accorded to transfer of property in line with the administration of a deceased person’s estate.

This proposed amendment therefore does away with the following popular exemptions among others:

  1. a) the  exemption  with  regard  to  private residence occupied by the Transfer or for 3 years prior to transfer;

b) the exemption where the transfer value is less than Kshs. 3,000,000; and

c) the exemption accorded to transfer of agricultural property  of  less  than  50 acres located outside a municipality.



The Bill proposes the deletion of the Second Schedule to the Act as currently constituted and its substitution with a new Schedule providing for “Investment Allowance”.

The  Second  Schedule  as  currently constituted has various parts providing for various deductions with respect to capital expenditure including buildings, machinery, agricultural land and Investment Deduction.

Currently a taxpayer claiming a deduction with respect to capital expenditure on buildings can either claim the deduction under Industrial Building Deduction or under Investment Deduction at varying rates. The same applies for machinery where a deduction can be claimed under Wear & Tear deduction or where the machinery has been installed in a building for purposes of manufacture under Investment Deduction at varying rates. Additionally, Investment Deduction rates as currently constituted provide varying rates depending on the location of the building i.e the rates within the cities varying from those elsewhere.

The new schedule seeks to harmonise, consolidate and simplify the provisions on deduction  with  respect  to  capital expenditure on the various items already provided for in the current Act and puts them all under the head Investment Allowance.

  • The new rates however propose a general reduction in the deductions allowable on capital expenditure on most items.



The amount of personal relief is proposed to increase from Kshs. 16,896 to Kshs. 28,800. Personal relief is granted to all resident individual taxpayers and is a deduction from tax payable. The increase has the effect of reducing tax payable.

Tax bands for individual income tax are proposed to increase as follows:

On the first Shs. 288,000 from – 10%

On the next Shs. 200,000 – 15%

On the next Shs. 200,000 – 20%

On all income above Shs. 688,000 – 25%

The  overall  effect  of  the  increase  is  that there will be no individual tax payable for persons earning Shs. 24,000 per month i.e. Shs. 288,000 per annum or less and a general reduction in individual tax for all individual tax payers.

The  rate  of  tax  on  the  highest  band  of pension   payment   has   also   been   reduced from 30% to 25%.


The corporate rate of tax is proposed to be reduced to 25%.



The reduction of the rate of VAT to 14% is not contained in the amendment Bill. This amendment to the rate was gazetted as Legal Notice    No.    35    in    the    Kenya    Gazette


Supplement No. 30 published on 26th March, 2020 and made pursuant to section 6 of the VAT Act which gives the Cabinet Secretary the power to vary VAT tax rates. The rate of 14% will be operational from 1st  April, 2020.



Whereas   currently   the   taxable   value   of petroleum   products   which   is   subject   to payment of VAT does not include the excise duty, fees or other charges payable on the product, the Bill proposes to adjust that taxable value so that the value of petroleum products which is subject to payment of VAT includes any excise duty, fees or charges payable on the supply.

The ultimate effect of this is an increase in the price of petroleum products.


The   Bill   further   proposes   to   reduce   the period within which a taxpayer registered to remit VAT can claim a refund for tax paid for a supply that has since become a bad debt from 5 years to 4 years.


Various amendments have been made to the zero rated and exempt supplies listed in the first and second schedule to the Act. A few worth noting are as highlighted below.

Supply of tea and coffee brokerage services are proposed to be added as exempt supplies.

The Bill proposes to remove the supply of ordinary bread as a zero rated supply making the supply of ordinary bread taxable with VAT at a rate of 14%. The Bill has also defined ordinary bread as “bread containing only the flowing ingredients; wheat flour, sugar, salt, yeast, fat or oil, bread improvers, preservatives and water.


Milk and cream, not concentrated nor containing added sugar or other sweetening matter, of certain tariffs are proposed to become exempt supplies removing them from the zero rated supplies category.

Medicaments of specific HS Codes as currently provided under Part C of the Second Schedule are proposed to now be made exempt supplies. Majority of these medicaments are those used in the treatment of Covid-19.



The Bill proposes the insertion of a new section providing for the appointed of agents for revenue banking services. These agents shall be persons registered under the Banking Act and will be tasked with collecting revenue on behalf of the Commissioner.


A taxpayer may apply to the Commissioner for a private ruling which shall set out the Commissioner’s interpretation of a tax law in relation to a transaction entered into, or proposed to be entered into, by the taxpayer. The Bill proposes to repeal the section of the TPA that requires the Commissioner to give such ruling within 45 days and further proposes to repeal the section requiring such private ruling to be published.





The Bill proposes to reduce the penalty for late filing of a return in relation to Turnover Tax from Shs. 5,000 to Shs. 1,000.

The above is a summary of the Amendment Bill of 2020 only, for further guidance or advice, please do feel free to contact us.


7 April 2020

“When tomorrow is too late.” A. F. Gross