TAX CHANGES 2020

TAX CHANGES 2020

March 4, 2020


The finance act 2019 was signed into law on 7th November by the president. The act had various amendments relating to taxes. Most of these laws are already in effect. They include: Amendment of Import Declaration Fees(IDF)and Railway DevelopmentLevy (RDL) rates IDF and RDL rates were amended and are now as follows:

Increase IDF on goods imported for home use from 2% to 3.5% except for raw materials and intermediate goods imported by approved manufacturers whose rate will be reduced from 2% to 1.5%; and Increase RDL on goods imported for home use from 1.5% to 2% except for raw materials and intermediate goods imported by approved manufacturers whose rate will continue being 1.5% and Increase RDL on goods
imported for home use from 1.5% to 2% except for raw materials and intermediate goods imported by approved manufacturers whose rate will continue being 1.5%.

Companies that list under the Nairobi Securities Exchange’s GEMS program for the next three years can be forgiven tax penalties and interest, provided they pay the principal amount. This move to encourage listing at the NSE became effective in November 2019. But if they delist within five years, that window lapses and all taxes due before listing will again become payable.
Excise Duty
Excise duty on cigars, cigarettes, wines and spirits of undenatured ethyl alcohol has been significantly increased. The taxes vary with different types of cigarettes alcohol. Motor vehicle excise taxes go up from 20 to 25% for cars over 1500 cc, and that for station wagons and race cars go up from 30 to 35%,

Receipts do not exceed five million or are not expected to exceed five million per year. The tax is accounted for on a monthly basis with return and payment due on or before 20th day of the following month of the tax period.
A person who is liable to pay turnover tax may, by notice in writing addressed to the commissioner, elect not to be subjected to turnover tax.
Turnover tax shall not apply to;

Rental income
Management or professional or training corporation tax for plastic recycling plants. A reduced corporate tax of 15% is introduced for these companies. The rate will be applicable for the first five years from the year of commencement of the company’s operations. Machinery and equipment used for the plastic recycling plants are also VAT exempt.

Real Estate Investment
Trusts (REIT’s), which were exempt from corporate tax are now also exempt from income tax.

Personal taxpayer PIN is now mandatory in the following registration:
1.

Registration and renewal of membership by professional bodies and other licensing agencies; and

2. Registration of mobile cellular pay bill and till numbers by telecommunication operators. but for electric-powered motor vehicles, that goes down from 20 to 10%. Sports betting companies tax increases to a 20% tax lopped on to each bet amount,
regardless of the outcome of the wager.

VAT
Zero rating of the supply of agricultural pest control products. Previously, these were vatable at the standard rate of 16%.

Real Estate Investment Trusts (REIT’s), which were exempt from corporate tax are now also
exempt from income tax.

Propane has been zero rated.

There is an income tax exemption for people who register under the Government’s Ajira Digital (online work) program from January 2020 to December 2022,provided that the individual shall pay a registration fees of KES
10,000 to qualify for the exemption.

Exemption of VAT on specialized solar equipment subject to approval by the Cabinet Secretary for Energy.
Exemption of VAT on services offered to plastic recycling plants and supply of machinery and equipment used in the construction of the plants

Turnover tax Turn over tax is re-introduced at the rate of 3% of the gross receipts per month.

ICT GOVERNANCE AND ITS ROLE IN BUSINESSES JANUARY 2019 – Sebie A. Salim

ICT Governance could be defined as leadership in decisions, organizations make towards aligning ICT to strategic business objectives. Governance answers three fundamental questions; What decisions must be made, who should make these decisions and lastly, how are the decisions made and monitored all in the best interest of the stakeholders. For the ICT Governance, we would ask ourselves:

How do we ensure that ICT delivers
business value?

How does it align with business strategy?

What are the risks associated with ICT?

Is the management held accountable for the return on investment in ICT?

Do operational excellence metrics help manage risks?

Businesses
that deploy effective ICT Governance improve their ability to realise institutional vision & goals through clear decision making which encourages a more responsible and accountable business management.
When an organization’s leadership is able to make data and computer driven decisions, it eliminates the need to rely on intuition or experience of specific employees or managers.

This strengthens the organization as a whole by reducing overreliance on these members of staff and provide more agility in response to the ever changing business conditions.

Businesses in Kenya and beyond are constantly improving their ICT Governance structures. With the ICT investments constantly on the rise and now, undeniably part of the highest capital costs for certain businesses, this hasbecome a key strategic pillar.

Businesses furthermore improve their experiences with greater creativity through more sharing of knowledge and resources across the organization by improving their communication across the organization.Clear cut communication allows an organization to quickly take advantage of conditions that favour growth and profitability as well as coordinate their activities to attain the desired results.

Businesses in Kenya and beyond are constantly improving their ICT Governance structures.
With the ICT investments constantly on the rise and now, undeniably part of the highest capital costs for certain businesses, this has become a key strategic pillar. Based on best practice, good governance structures will involve having a board committee within the main board that handles ICT decisions. To improve the decision making,
independent experts are also appointed to  be part of the board, but their role is strictly advisory, unless by special appointment they are granted decision making powers. Senior ICT management is also required to be part of this committee.

This committee reports to the main board and would meet at an agreed number of times during the year and make decisions involving organizational ICT policies, objectives, data architecture, business application requirements, ICT infrastructure and levels of investment. These important
decision areas support organizations to understand whether their ICT is able of deliver expected business needs along with resource management, performance and alignment.

They get an increase in investments benefits and a general reduction in costs through performance measuring and budgetary controls and through balancing technological advancement against business priorities and return on investment. Better internal information dissemination regarding the outside environment an organization operates
in prevents wastage of resources resulting in cost cutting, and additional information lends a better perspective on the investment opportunities at hand. Finally they are efficient and have a greater quality of data and services from all the shared services compared to organizations with poor ICT Governance. This overall level of efficiency stems from management’s policy of data maintenance. Such commitment to one department is a good indicator that an
organization has similar structures in place for its other departments.

For small businesses that do not have a robust corporate governance structures, the business owners together with their ICT Support team, should consider coming up with a simple checklist that will contain a set of steps and questions that they would need to answer regularly whenever they need to make decisions on their ICT plans and investment. A more collaborative approach to implementing governance ensures clear understanding and
approval of all involved parties on policies or directions and the scope of ICT in the organization. Businesses consuming or being driven by technology; big, medium or small must have an ICT Governance structures.

(The Writer is an ICT Expert with an International
Software Company and Seats in Boards of
Financial Institutions providing ICT Direction)

BREXIT, KENYA ENTRY INTO EUROPEAN MARKETS?

The Government of the United Kingdom triggered Article 50 to begin the UK’s withdrawal from the EU in March back in 2017 following a referendum, and the withdrawal was scheduled in law to occur on 29 March 2019.
As a result, the UK sought, and was granted, a further Article 50 extension until 31 January
2020. On 23 January 2020, the Withdrawal agreement was ratified by the Parliament of the United Kingdom, and on 29 January 2020 by the European Parliament, affirming that there will be an agreement in place if the UK leaves
the EU. The UK left the EU on the 31 January 2020 at 23:00 GMT joining the ranks of French Algeria, Greenland and Saint Barthelme.

After the 2016 referendum that saw 52% majority to Leave. Residents decided that the benefits of belonging to the unified monetary body no longer outweighed the costs of free movement of immigration. Brexit is the nickname for “British exit” from the EU. Socially, the results of the referendum began to expose deep rifts between major voter
demographics on their view on the future of the UK. Majority of the voters aged below 45 years voted to remain in the EU while those over the age of 45 voted to leave the EU. Most of the pro-Brexit voters were older, working class residents of England’s countryside. They were afraid of the free movement of immigrants and refugees.

Brexit has been a highly controversial social, political and economic issue in the UK since

Politically, Brexit has seen the resignation of two Prime Ministers. David Cameron,who resigned soon after the results of the referendum. His replacement, Teresa May resigned on 24 July 2019 after her propositions on the UK’s Brexit plans were rejected after being brought before Parliament for debate and vote. She was unable to get Parliament to approve her Brexit plan. May had negotiated the 21-month transition plan with the EU on March 19, 2018. She officially resigned as Prime Minister of the United Kingdom on 24 July 2019, following the victory of Boris Johnson at the Conservative Party leadership election on 23 July. Her replacement, Boris Johnson, has
been regarded as ‘the British Donald Trump.”

Hard or Soft Brexit. In January 2018, the UK government’s own Brexit analysis was leaked; it showed that UK economic growth would be stunted by 2%–8% for at least 15 years following Brexit, depending on the leave scenario.
In summary, the Brexit vote had imposed these three hard choices on the U.K;
1.

Economically, there is overwhelming or near unanimous agreement among economists that leaving the European Union will adversely affect the British economy in the medium- and long-term. Surveys of economists in 2016 had
shown overwhelming agreement that Brexit would likely reduce the UK’s real per-capita income level. 2017 and 2019 surveys of existing academic research found that the credible estimates ranged between GDP losses of 1.2%–4.5% for the UK, and a cost of between 1–10% of the UK’s income per capita. These estimates differ depending on whether the UK does a

Leave with no deal, known as “no-deal Brexit.” New PM Boris Johnson and his supporters favor this outcome. But without a trade agreement, ports would be blocked and airlines grounded. In no time, imported food and drugs would run short. Johnson warned companies to prepare for this outcome.

2. Vote again on Brexit. Polls show the U.K. would reject Brexit if the referendum were held today. Johnson’s opponents argue that voters did not understand the economic hardships that Brexit would impose. On December 10, 2018, the European Court of Justice ruled that the U.K. could revoke its Brexit application unilaterally. No other EU body is needed to approve the withdrawal.
3. Approve May’s deal or draft and approve another one similar to it. The U.K. doesn’t have the economic clout to negotiate a better one. Johnson has told the EU he refuses to meet unless it agrees to a border between Northern Ireland and the Republicof Ireland.

New PM Boris Johnson and his supporters favor this outcome. But without a trade agreement, ports would be blocked and airlines grounded. In no time, imported food and drugs would run short. Johnson warned
companies to prepare for this outcome.

President Uhuru Kenyatta on Tuesday said BREXIT presents an opportunity for Kenya and the UK to forge deeper trade ties as he pitched for private sector support to accelerate delivery of the ‘Big 4 Agenda’ projects.

So, where exactly is the opportunity for our country? nature and one of our major problems in food production is tied to distribution and demand. We have good levels of infrastructure for export purposes, what we lacked was the
demand and market. Brexit opens up the UK markets to cheaper Kenyan imports.

A no-deal Brexit means that the U.K. would no longer be a member of the EU and it would have no trade agreement. It would eliminate Britain’s tariff-free trade status with the other EU members. Tariffs would raise the cost of
exports. That would hurt exporters as their goods became higher-priced in Europe. Some of that pain would be offset by a weaker pound.

Speaking at a meeting between Kenya and UK business executives, President Uhuru Kenyatta reiterated on the huge potential of re-igniting the partnerships and investments between the two countries. He used the platform to pitch
for investment to Kenya as a gateway to East and Central Africa. The blue economy and Tariffs would also increase prices of imports into the U.K. One-third of its food comes from the EU. Tariffs are as high as 74% for tobacco,
22% for orange juice, and 10% for automobiles.  Higher import prices would create inflation and lower the standard of living for U.K. residents. This however makes Kenyan imports more attractive due to more favorable prices.
However, the standards must be met by our exporters as the requirements for export and foreign consumption are high.

Tariffs would also increase prices of imports into the U.K. Onethird of its food comes from the EU. Tariffs are as high as 74% for tobacco, 22% for orange juice, and 10% for automobiles. Higher import prices would create inflation and lower the standard of living for U.K

A hard border would require all imports to go through customs. Delays at the border could create food shortages. The U.K. is vulnerable because heat waves and droughts caused by global warming have already reduced
local food production. Kenya is agrarian by Big Four agenda were highlighted as huge potential areas.
According to Paul Kihiu, Business Development Director of the Candr Group, there is more opportunity that meets the eye. “…Due to Brexit, Kenya has the opportunity to negotiate new bilateral trade deals directly with the UK
which could result in more Kenyan produce, like snow peas, French beans and bananas, reaching the UK market without having to pass through countless barriers and regulations. These barriers and regulations were heavily
enforced by the EU, favoring farmers from other member countries of the EU…” “In the agricultural sector, Britain has been a critic of the EU’s Common Agriculture Policy (CAP) which allows subsidies to European farmers. Presumably, this is because Britain does not benefit much from it. The CAP reduced access of African farmers to the EU. Brexit might there fore change this, with African

The Government of the United Kingdom triggered Article 50 to begin the UK’s withdrawal from the EU in March back in 2017 following a referendum, and the withdrawal was scheduled in law to occur on 29 March 2019.

farmers also getting easier access to the UK…” he further writes. At the end of the day, what matters most is the type of deal the UK makes or takes with the EU. Whether or not that decision is accepted and ratified by the voting parties in question is still unknown. What is known is that Kenyans; especially finance aficionados and professionals are paying attention.

CRYPTOCURRENCY AND BLOCKCHAIN TECHNOLOGY
Cryptocurrency in layman terns is essentially money whose value is not necessarily derived from a physical value but primarily in its acceptance. Crypto therefore only has value if someone accepts it as a form of currency. It is this  reliance on acceptance that leads to its instability and the fluctuations thereof which lead to gains or losses in value. many people could be jumping on board the crypto train. This adoption and use by even such few numbers in what is touted as ‘Africa’s
Silicon Valley” is concerning, but hype is building with several official bodies doing their
best to speed up its adoption. Crypto-currencies run on a technology called blockchain – a ledger of blocks of information, such as transactions or agreements that are stored across a network of computers. The information is stored chronologically and is designed to be decentralized and tamperproof. This foundation is part of the reason why the BAK, the Blockchain Association of Kenya, a not-for-profit body is actively educating and fostering more and more transactions via cryptocurrrency. The total number of Bitcoin transactions in Kenya are estimated to be worth over $1.5m, according to the Blockchain Association of Kenya.

Due to this and other factors based on its acceptability and the fact that it is a peer to peer level transaction with no governing oversight; most African countries, Kenya notwithstanding, do not endorse cryptocurrencies and actually
actively oppose it. This is often stated to be a way of protecting local citizens from fraud and losing money, but it may also be the result of an underlying need to protect physical currencies.
In Kenya, cryptocurrency use is gaining popularity, and it is estimated that around 40,000 people have made a crypto transaction. This is a relatively low number considering how

But how does it all work.

First, digital currencies are created through a process of ‘mining’ to verify each transaction on a blockchain. While information on each transaction is recorded on the blockchain, this data is not directly linked to names, physical
addresses, or other identifying information. This makes digital currencies anonymous to a certain degree, and complicates efforts by law enforcement agencies to identify individual transactions and link them to users.

Economist and policy expert Vincent Kimosop told the BBC business desk in a 2018 interview that, “Crypto-currencies can facilitate and ensure that you do an unlimited number of transactions, however the volatility, lack of
control and the non-acceptability of cryptocurrencies across different jurisdictions impairs what you’d expect a currency to do.”

Bitcoin provides financial security, as the blockchain acts as an impartial intermediary, ensuring that coins are irrevocable once spent. The blockchain network also hampers attempts to recall a verified bitcoin transaction
unless the recipient returns coins back to the sender. In this context, digital currencies such as bitcoin prevent double spending and ensure that money cannot be duplicated within the network. If an attempt at duplication is made, the blockchain rejects the transaction as faulty or forged.

Moral considerations will inevitably come into play when deciding whether or not to lift the ban on cryptocurrency by the CBK. On Nov. 20 2019, cryptocurrency forensics and analysis firm Elliptic published an analysis on
XRP transactions. According to their findings, the firm disclosed that $400 million worth of XRP had been used for “illicit activity.” This represents just 0.2% of total transactions, something which Elliptic suggests makes the vast majority of activity “legitimate.” Still, $400 million is no insignificant number. This is

The non-profit body says that using virtual currencies can greatly reduce the cost of transactions, and enable people without bank accounts to quickly make and receive payments. According to BAK, there are many things Kenyans have realised they can use Bitcoin for – whether it is to pay merchants in China for goods, or to enable Nigerians to pay to send their children to school in Kenya, or to enable young African freelancers to be easily paid for their work online.

According to a 2015 Europol report, bitcoin has featured in high-profile investigations involving payments between
criminals, and was used in over 40% of illicit transactions in the European Union. especially true for XRP, which was designed with institutional and commercial financial systems in mind.

According to a 2015 Europol report, bitcoin has featured in high-profile investigations involving payments between criminals, and was used in over 40% of illicit transactions in the European Union. It is therefore unsurprising that terrorists and criminals would use digital currencies for illicit transitions, given they offer similar benefits of trust and credibility.

The trade-off?
The value of the currency fluctuates wildly and is rarely static, so you could either gain or lose purchasing power at any moment. Your transactions help disguise those of criminals and it is not fully recognized by financial institutions in Kenya so you’ll have to cater to a niche techno-savvy market.

Despite the proliferation of more than 2000 cryptocurrencies, including harder-to-track privacy coins, the overwhelming majority of criminals still prefer Bitcoin for illicit activity. “Bitcoin is by far the favorite,” Jonathan Levin, co-founder and COO of Chainalysis, tells online magazine Fortune on their episode of “Balancing the Ledger” airing as from 24th April 2019.

Will it be adopted in Kenya any time soon? Only time will tell.

So, cryptocurrency provides a fast, reliable, tamper proof and transparent method of settling payment with no direct fees or middlemen. It is a direct peer to peer transaction with no hidden transaction fees for amount or any distance across the entire globe. It is this quality however that also allows criminals to fund their activities with the same  level of efficiency as any above board business. Doubtless it can allow for SME’s to save money on transaction costs and to avoid fraud, scamming and skimming; grow by making and maintaining useful supply and logistical lines
from international partners with payment and credibility assured.

This document was prepared by:  JM Associates provides professional and quality services to small and medium enterprises in the areas of audit, advisory and tax in the East Africa region. Our facilities are tailor-made to the needs of the business to enable our clients make informed financial decisions, making their businesses more profitable.

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