Tax changes introduced through the Tax Laws (Amendment) (No.2) Act, 2020 effective from 1 January 2021
In the wake of increased cases of the spread of Corona Virus (COVID-19), we hope you are well.
Effective 1st January 2021, there are various changes in tax rates which were introduced through the Tax Laws (Amendment) No. 2 Act of 2020 that was assented to by the President on 23rd December, 2020 and published on 24th December 2020. These changes affect employment income, Corporation Tax, and Value Added Tax (VAT). The Act has reinstated the tax concessions introduced by the government in April, 2020 to mitigate the impact of COVID-19 on the economy.
Pay As You Earn (PAYE)
The new PAYE rates for individual income are set out in the table below with the personal relief being KES 2,400 per month. The PAYE band rates have been reduced to 3 from 5.
| Income | New P.A.Y.E. Rate |
| KES 0 – KES 24,000 per month | 10% |
| On the next KES 8,333 per month | 25% |
| On all income amounts in excess of KES 32,333 per month | 30% |
The P.A.Y.E. bands applicable to pension withdrawals before the expiry of fifteen years from the date of joining the pension fund are now similar to those of income earned by an individual. The PAYE rates are as above
The new P.A.Y.E. bands applicable to pension withdrawals after the expiry of fifteen years from the date of joining the pension fund, attainment of 50 years of age or retirement are set out in the table below.
| Pension (KES) | New P.A.Y.E Rate |
| On the first KES 400,000 | 10% |
| On the next KES 400,000 | 15% |
| On the next KES 400,000 | 20% |
| On the next KES 400,000 | 25% |
| Above KES 1,600,000 | 30% |
Corporation Tax
The rate of Corporation Tax for resident companies has reverted to 30% of taxable income effective 1 January 2021.
This means that the corporate tax rate for companies for year of income running from 1st January 2020 to 31st December 2020 will be charged at 25% for the full year. Where the company’s financial year ends in between the year other than December 2020, the corporate rate tax will be apportioned where income accrued in the year 2020 will charged at 25% and income accrued in the year 2019 or 2021 will be charged at 30%.
Value Added Tax
The standard rate of Value Added Tax has reverted to 16% effective 1st January 2021 via Legal Notice No. 206 of 2020 published on 23rd November, 2020.
Minimum Tax
The new Minimum Tax will be payable effective 1st January 2021 by persons whose instalment tax is lower than the minimum tax. The applicable rate for the minimum tax is 1% of the gross turnover. It shall be payable by the 20th day of the 4th, 6th, 9th and 12th month of the accounting period.
Minimum tax shall not be applicable to the following businesses:
- Business whose retail price is controlled by the government such are Oil Marketing Companies
- Insurance businesses
How we can assist
CM Advocates has a fully-fledged tax law advisory business unit that offers a vast range of tax advisory services. Our highly qualified and experienced personnel will assist with your tax matters and ensure that your business is tax compliant.
Kindly get in touch with us for any clarifications and assistance on the above by contacting our Tax Advisory Business Unit members via +254 716209673 or on email via taxteam@cmadvocates.com.
