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Tough times ahead as COVID-19 tax relief ends

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Kenyans must brace themselves for hard times ahead as the National Treasury announced that it will return to pre-COVID-19 tax rates.

Treasury Cabinet Secretary Ukur Yatani said Friday that tax rates for Pay as You Earn (PAYE) and Value Added Tax (VAT) will be restored to old rates effective 1st January 2021.

Acting on the directive of President Uhuru Kenyatta, the National Treasury in April lowered corporate, PAYE, and VAT rates as part of the government’s efforts to cushion Kenyans and businesses from the adverse effects of the COVID-19 pandemic.

This was implemented with the understanding that the tax rates will be reviewed as soon as the economy picks up.

Under the Tax Laws (Amendment) Bill, 2020 which President Uhuru assented to on April 25, a 100% PAYE tax relief was extended to employees earning less than KSh24,000 per month.

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For Kenyans earning a monthly salary of more than KSh24,000, they benefitted from a PAYE tax reduction of 25% to 30%. The VAT rate was also lowered from 16% to 14%.

Effective 1st January, the Corporate Tax rate will revert back to 30% from the current 25%, VAT will revert to 16% while PAYE will revert to 30%.

Continued Relief to low-income earners

The government will, however, continue to cushion the low-income earners, by retaining 100% tax exemption for those earning monthly income of KSh24,000 and below.

“Government will continue to roll-out interventions under the KSh58.1 billion Economic Stimulus Programme, such as Kazi Mtaani and others, to cushion vulnerable citizens and also enhance the liquidity of businesses,” says CS Yatani.

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