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Uhuru orders tax reliefs to cushion poor Kenyans

By Fred Aminga
Thursday, March 26th, 2020
Traders at Maasai Market off Kijabe Street in Nairobi wait for customers on Tuesday. Business is low as more Kenyans heed directive to stay home. Photo/PD/David Ndolo

Fred Aminga @faminga

President Uhuru Kenyatta yesterday announced far-reaching measures to cushion the poor and protect job losses by ordering the National Treasury to implement various reliefs.

The move is meant to inject more money into an economy  that has been jolted by the coronavirus pandemic.

Addressing the nation,  the Head of State said stringent measures, including limited movement and self-quarantine to tame the spread of the coronavirus,  have had a huge impact on socio-economic status of the country.

In a move to stave off a likely depression, the Head of State ordered for 100 per cent tax relief for persons earning gross monthly income of Sh24,000. He also ordered for the reduction of Income Tax Rate (Pay-As-You-Earn) from 30 to 25 per cent.  Resident Income Tax (Corporation Tax) was also reduced from 30 to 25 per cent.

The National Treasury has also been directed to reduce value added tax (VAT) from 16 to 14 per cent, effective April 1.

Cash transfers

Turnover tax rate was reduced from the current three to one per cent for all micro, small and medium enterprises (MSMEs).

An additional Sh10 billion has been set aside for the elderly, orphans and other vulnerable members of the society through cash transfers by the Ministry of Labour and Social Protection, to cushion them from the adverse economic effects of the Covid-19 pandemic.

Listing with Credit Reference Bureaus (CRB) has been suspended for any person, MSMES and corporate entities whose loan account fall overdue or is in arrears, effective April 1.

“All Ministries and departments shall cause the payment of at least of Sh13 billion of the verified pending bills, within three weeks from the date hereof,” Uhuru said.

Similarly, and to improve liquidity in the economy and ensure businesses remain afloat by enhancing their cash flows, the private sector was asked to clear all outstanding payments among themselves within three weeks.

Kenya Revenue Authority is also expected to expedite payment of all verified VAT refund claims amounting to Sh10 billion within three weeks, or in the alternative, allow for offsetting of Withholding VAT, in order to improve cash flows for businesses.

 “Sh1billion from the Universal Health Coverage kitty, be immediately appropriated strictly towards the recruitment of additional health workers to support in the management of the spread of Covid-19,” said Uhuru.

Salary reduction

The President further urged all arms of government to take pay cuts and offered a voluntary reduction in the salaries of the senior ranks of the National Executive, with the President and his deputy taking an 80 per cent salary cut. 

Cabinet Secretaries will go home with a 30 per cent salary cut, Chief Administrative Secretaries (30 per cent) and Principal Secretaries (20 per cent).

“I hereby order and direct that all State and public officers with pre-existing medical conditions and/or aged 58 years and above, serving in Job Group S and below or their equivalents, take leave or forthwith work from home, excluding personnel in the security sector and other essential services as outlined in the circular issued to the Public Service on March 16, 2020,” he said.

The Central Bank of Kenya (CBK) has lowered of the Central Bank Rate (CBR) to 7.25 per cent from 8.25 per cent to prompt commercial banks to lower the interest rates to their borrowers, availing the much needed and affordable credit to MSMEs across the country.

Lowering the Cash Reserve Ratio (CRR) to 4.25 per cent from 5.25 per cent should provide additional liquidity of Sh35 billion to commercial banks to directly support borrowers that are distressed as a result of the economic effects of the Covid-19 pandemic.

Positive measure

CBK will provide flexibility to banks with regard to requirements for loan classification and provisioning for loans that were performing as at March 2, and whose repayment period was extended or were restructured due to the pandemic.

Dr Samwel Nyandemo, economics lecturer at Nairobi University, said the measures are a positive measure for the economy, but quickly added that he expected more from the President.

“We should be more concerned with critical sectors of the economy such as medical care. I expected zero rating of incoming medical appliances. Medics are complaining of lack of specialised equipment,” he said.

“I expected the President to come up with measures like tax holidays, say for like five months to encourage enterprise to soldier on,” he added.

Nyandemo said he also expected to hear of a stimulus fund to those offering essential services, adding that the curfew might not work despite all efforts.

A partner and tax expert at PKF Consultants,Michael Mburugu, called exemptions of those earning below Sh24,000 a big joke, wondering what employers will be thinking about as they offset the taxes for these people. 

“The best thing could be to sack them,” he said. “The government should differ PAYE, VAT and taxes for six months. But it might take longer,” he added.

On the 7pm-5am effective Friday, Mburugu said: “Is coronavirus only spread at night? This declaration is implying a false assumption by the office.”