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Centhive Tax Advisory | Budget 2018-2019 Insights.
Here we highlight changes that may result from the 2018 tax bill.
1. Sea freight.
Demurrage charges paid to non-resident ship operators is proposed to be subject to withholding tax at the rate of 20% on the gross amount. This will increase cost of freight since in the case of non-resident tax operators evading this tax, local ship operators and their agents will have to bear these tax costs. In this case, the local ship operators and their agents can settle at shifting the burden to local consumers and hence making imported goods more costly.
2. Presumptive Income Tax (PIT).
In the proposed bill, PIT is reintroduced in place of turn over tax (which was difficult to implement). PIT will be enforced through imposing it on business operators (majorly targeted for dominating the dominant informal sector) during acquisition or renewal of business permits from county governments.
3. Top Tax Rate
Contrary to the expected increment to 35% as suggested in the May 2018 draft of the Income Tax Bill (ITB), the top tax rate for high income earners (earning above kes.750,000p.m/ 9,000,000p.a) will be maintained at 30%. In our view, this will allow the high income earners to have investible savings and deny the government a pool of revenue earnings.
4. Tax Amnesty
A low uptake of tax amnesty on foreign income despite extension of deadline due to uncertainties as to whether other arms of the government would query the source of the repatriated funds.
5. Noncompliance penalties
Introduction of a late payment penalty of 20% an increment in interest payment from 1% to 2% on individual taxpayers. This is aimed at increasing the compliance rate.
6. Empowerment of RBA
The Retirement Benefit Authority is empowered levy penalties to employers who fail to remit employee’s pension contributions promptly.
7. Value Added Tax
Proposed exception of VAT on computers and computer parts aims at promoting local computer assemblies thus creating jobs, spurring innovation and propelling the country into becoming a regional ICT hub.In preference of exception to zero rating of VAT, the government in our hypothesis may not achieve the goal of reducing cost to the end consumer since VAT exceptions will result into non-recoverable VAT for the suppliers which will be ultimately shifted on to the final consumer.