Despite the tough times brought about by the Covid-19 pandemic that has crippled the economy, the National Treasury has managed to weave in some much-needed incentives in the Budget.
An analysis of the Finance Bill, 2021, which is the basis of the 2021/2022 Budget, by tax advisory firm KPMG highlights several proposals that if implemented, may improve the investment environment.
This includes the proposal to eliminate the 10-year period before firms can use their losses to offset tax. The scrapping of the requirement means that companies can carry forward the losses made until they are cleared.
But to avoid some individuals taking advantage of the law change to reduce their tax obligations, Treasury has introduced a minimum tax which is calculated at one per cent of gross sales as opposed to profits.
“It should be noted, however, that the High Court has temporarily suspended the collection of minimum tax by Kenya Revenue Authority pending the hearing of petitions brought forward against the introduction of the new tax,” says KPMG.
The Bill has an incentive for employers whose tax rebate is based on the hiring of university students, which will now extend to technical vocational education and training institutions.
Employers previously were eligible for this rebate if they hired at least 10 university students for six months. “Previously, the rebate was only applicable to employers providing apprenticeship to university graduates. The rebate available is equivalent to 150 per cent of the amount of salaries and wages paid to at least 10 apprentices for a period of six-12 months,” reads another analysis by RSM Global, a tax and audit firm.
The contentious digital service tax (DST) has had its purview shrunk in the Finance Bill by exempting Kenyan residents.
“Additionally, if the non-residents’ income is subject to withholding tax or where the non-resident person is in the business of transmitting messages via radio, cable, optical fibre, television broadcasting, internet, satellite or VSAT, the provisions of DST shall not apply,” reads the analysis by RSM Global.
Investors in the extractive industry also have something to celebrate as they will no longer require a mining right to claim capital allowance on machinery used. Capital allowance is the money a firm or business can claim to recover its initial expenditure. “This will enhance the investment in exploration activities due to the removal of the requirement to obtain a mining right which might, in the long run, lead to the discovery of minerals that would spur the country closer to the much-desired economic independence,” explains KPMG.
The incentive has also extended to the professional fees on players in the mining and petroleum sector.
The Bill proposes withholding tax rate for payments for the provision of management, training or professional fees from 12.5 per cent to 10 per cent. These changes will apply to interest on all loans, payments economically equivalent to interest and expenses incurred in connection with raising the finance.
“The proposal is a welcome change as it will give reprieve to the extractive industry in Kenya since the reduced rates will allow for greater cash flows for players within the industry,” says KPMG.