Tax amendment Bill not quite what was expected

We are coming to the end of our fourth Coronavirus week in Kenya. Testing is increasing, but we’re still only at one-tenth of South Africa’s population coverage thus far (100 versus 1,000 per million). The caseload and fatality rate is slowly rising, and we’re not quite sure where this is headed. We’ve partially locked down around 10 million people, but the night curfew continues to apply to all 47 million of us.

The health emergency remains the priority for now, but the economic nightmare grows. We aren’t saying much about the social disruption that’s taking place, about how we’re coping or if it’s permanent. And I’ll say it again; we’re rather quiet about a digital future of life and work. As one person on a WhatsApp group I sit on asked: post-Coronavirus economy, what will Day One look like? Let’s factor this into our continuing thoughts and prayers during an Easter in which the virus hasn’t taken a break.

Meanwhile back on Planet Kenya, the draft Tax Laws (Amendment) Bill 2020 has kept quite a few people occupied since its publication on March 30, five days after President Uhuru Kenyatta announced tax measures to stimulate the economy.

Comments on the bill were expected by April 6, and I’ve seen a few write-ups by professional bodies, associations and private consulting firms. Put politely, these commentaries are unimpressed by several of the proposals. So I decided to take a look myself.

Let’s start at the beginning. If we recall, the President announced four tax measures that required law. In short order, full tax relief for lower (not low) incomes, top tax rate cuts for corporates and individuals, reduced turnover tax for micro, small and medium enterprises (MSMEs) and a reduced VAT rate.

The good news is that these promises are all in the bill. Except for the corporate tax rate reduction. “Typing error,” anyone?

As an aside, the Parliamentary Budget Office estimates total revenue loss from these measures at Sh122 billion, while noting that 97 per cent of original revenue target would have gone to three items – recurrent expenditure, interest payments and county allocations. Calamitous times, but I digress.

If we paid attention after March 25, those four measures would have been the bill.

Yet, in a 97-page tome of deletion after deletion, and insert after insert, the bill offers more. Clearly, the President’s reliefs were added to a “stealth” bill already in the works, a bit like those Miscellaneous Amendment laws that quietly change the constitution (remember those security law amendments in 2014?). Simply, the bill and the President’s speech are distant cousins. In short, it’s smoke and mirrors.

Here’s a little taste of what’s also in the bill.

Infrastructure, social and green bond income is no longer tax exempt. Tax incentives for newly listed companies are removed. The recently introduced 30 percent electricity rebate for manufacturers is gone.

So too is corporate tax deductibility for trade association fees and subscriptions, club subscriptions for employees and spending on public social infrastructure. “Big Four”? Well, say goodbye to the much vaunted House Ownership Savings Plan is now scrapped.

An interesting one is the proposal to raise withholding tax rates on dividends paid to non-residents, which will apply in all cases where double tax treaties do not exist. Did someone just say Mauritius?

Overall, the first schedule of our 1975 Income Tax Act, which covers tax exemptions has been decimated, probably to the delight of the International Monetary Fund (IMF). Big money and big business won’t be happy. In the meantime, the second schedule of the act has been reformatted. Investment deduction allowances, industrial building allowances and wear and tear allowances have been reduced or spread out.

Jump across to VAT, where zero-rated bread, milk, vaccines and medicines will become exempt, meaning they must now absorb input costs. In a time of coronavirus, we’re talking pricier bread milk and medicine?

Stuff like LPG, stoves and cookers, biogas equipment, agriculture pest control products, man-made fishing nets, mosquito nets, stoves and inputs for the manufacturing of everything from pesticides to solar batteries now falls under the VAT hammer. Throw in VAT on stock broking services.

It’s almost as if there’s no virus around. And, if these revenue measures don’t work, there’s always that Sh500,000 KRA “finder’s fee”. Seriously speaking, in these Covid-19 times, whose government is this?