Finally, the Finance Bill 2018 was taken through the legislative process with various amendments.
It is now law as an Act of the Kenya Parliament, the Finance Act 2018, having been assented to on 21st September 2018.
The following are some highlights of the Finance Act 2018. The list is not exhaustive. There is more in the Finance Act(2018) which we have attached.
8 % VAT
Despite the heated debates across the country about VAT on specified petroleum products, the tax was finally introduced, but at a lower rate of 8%. However, it will be levied in addition to excise duty, fees, and other charges. Anyway, 8% is better than 16% for consumers.
Presumptive tax
Presumptive tax has been introduced, effective 1st January 2019, for persons with annual turnover of less than kshs 5 million.
Note the following:
- The rate of Presumptive tax will be 15% of the amount payable for a business permit or trade license issued by a County Government.
- The tax due date is the date of payment for the business permit, trade license, or renewal.
- Presumptive tax is a final tax.
- A person has a choice to write to the Commissioner to be excluded from the tax but included under other sections of the Income-tax.
- The following are not subject to the provisions of Presumptive tax:
- Management and professional services.
- Rental business.
- Incorporated companies.
Extension of time to submit tax returns
A taxpayer can seek to extend the time within which to submit a tax return. The time allowed is 15 days for monthly returns for taxes such as VAT and Excise duty, and 30 days for annual returns for taxes such as Income tax. The Commissioner should give a reply within five days before the due date.
If the applicant does not receive communication from the Commissioner, then the extension is deemed to have been granted.
Only one extension can be granted for each tax return. However, the original due date for tax payment will still be applicable. When an extension to submit tax returns late is granted, the late submission penalty does not apply.
Amended self-assessment returns
The Commissioner has the right to accept or reject amended self-assessment returns. If the amended self-assessment returns are rejected, the Commissioner must include reasons for the rejection. This must be done within 30 days of receiving the amended self-assessment returns.
Late tax submission penalty
Any person who fails to submit tax returns on time will pay late submission penalty as follows:
- VAT and Excise duty – 5% of the tax due in the return or kshs 10,000 whichever is higher.
- Other taxes such as corporate income tax – 5 % of the tax due in the return or kshs 20,000, whichever is higher.
- Other taxes such as income tax for individuals – 5 % or kshs 2,000, whichever is higher.
Late tax payment penalty
The rate has been reduced from the current 20% under income tax and the proposed 20% under VAT to 5%. This is a great relief to many taxpayers.
Late payment interest was maintained at the rate
The late payment interest rate has been maintained at 1% (appearing under the Miscellaneous Section), though there were proposals to increase the rate by 100% to 2%. However, the interest should not exceed the principal amount. The interest is also calculated as simple interest.
Waiver of interest and penalties
The Commissioner has powers to waive penalties and interest. However, for amounts over kshs 1.5 million, the Commissioner must:
- Seek prior approval from the Cabinet Secretary (CS) to the National Treasury.
- Make quarterly reports on the waivers granted to the Cabinet Secretary.
The ground for waivers of penalties and interest are:
- For hardships and equity purposes.
- Impossible, difficult or costly to collect the tax.
Tax representatives
Where a taxpayer has more than one tax representative, each tax representative is responsible for the tax obligations that they were appointed for.
For more on the items covered including the effective dates read the Act here Finance Act 2018
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Disclaimer
This post is for a general overview and guidance and does not in any way amount to professional advice. Hence, www.taxkenya.com, its owner, or associates do not take any responsibility for the results of any action taken on the basis of the information in this post or for any errors or omissions. Kenyan taxpayers must always rely on the most current information from KRA. The tax industry in Kenya is very dynamic.
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