Tax Changes Introduced Through The Tax Laws (amendment) (no.2) Act, 2020 Effective From 1 January 2021

In the wake of increased cases of the spread of Corona Virus (COVID-19), we hope you are well. Effective 1st January 2021, there are various changes in tax rates which were introduced through the Tax Laws (Amendment) No. 2 Act of 2020 that was assented to by the President on 23^rd December, 2020 and published on 24th December 2020. These changes affect employment income, Corporation Tax, and Value Added Tax (VAT). The Act has reinstated the tax concessions introduced by the government in April, 2020 to mitigate the impact of COVID-19 on the economy.

Pay As You Earn (PAYE)

The new PAYE rates for individual income are set out in the table below with the personal relief being KES 2,400 per month. The PAYE band rates have been reduced to 3 from 5.

Income	New P.A.Y.E. Rate
KES 0 – KES 24,000 per month	10%
On the next KES 8,333 per month	25%
On all income amounts in excess of KES 32,333 per month	30%

The P.A.Y.E. bands applicable to pension withdrawals before the expiry of fifteen years from the date of joining the pension fund are now similar to those of income earned by an individual. The PAYE rates are as above The new P.A.Y.E. bands applicable to pension withdrawals after the expiry of fifteen years from the date of joining the pension fund, attainment of 50 years of age or retirement are set out in the table below.

Pension (KES)	New P.A.Y.E Rate
On the first KES 400,000	10%
On the next KES 400,000	15%
On the next KES 400,000	20%
On the next KES 400,000	25%
Above KES 1,600,000	30%

Corporation Tax

The rate of Corporation Tax for resident companies has reverted to 30% of taxable income effective 1 January 2021. This means that the corporate tax rate for companies for year of income running from 1st January 2020 to 31st December 2020 will be charged at 25% for the full year. Where the company’s financial year ends in between the year other than December 2020, the corporate rate tax will be apportioned where income accrued in the year 2020 will charged at 25% and income accrued in the year 2019 or 2021 will be charged at 30%.

Value Added Tax

The standard rate of Value Added Tax has reverted to 16% effective 1st January 2021 via Legal Notice No. 206 of 2020 published on 23rd November, 2020.

Minimum Tax

The new Minimum Tax will be payable effective 1^st January 2021 by persons whose instalment tax is lower than the minimum tax. The applicable rate for the minimum tax is 1% of the gross turnover. It shall be payable by the 20^th day of the 4^th, 6^th, 9^th and 12^th month of the accounting period. Minimum tax shall not be applicable to the following businesses:

• Business whose retail price is controlled by the government such are Oil Marketing Companies
• Insurance businesses

How we can assist

CM Advocates has a fully-fledged tax law advisory business unit that offers a vast range of tax advisory services. Our highly qualified and experienced personnel will assist with your tax matters and ensure that your business is tax compliant.Kindly get in touch with us for any clarifications and assistance on the above by contacting our Tax Advisory Business Unit members via +254 716209673 or on email via taxteam@cmadvocates.com.