Kenya’s parliament has approved the Treasury’s recommendations to increase Value Added Tax (VAT), Individual income tax, and corporate tax, signalling tough times in the new year for households and businesses.
Through a report by the Committee on Delegated Legislation tabled before the house yesterday, the Government will increase the Value Added Tax(VAT) from 14% to 16% with effect from 2nd February 2021.
Kenya’s parliament approved this crucial tax plan on Tuesday 22nd December 2020 at 5.00 pm before it adjourned for the end year holidays until 9th February 2021 at 2.30 pm.
This Bill also seeks to increase the individual income tax rate and corporate tax for resident firms from 25% to 30%.
The reduction in the individual tax- personal relief and PAYE tax and corporate tax rates, instituted in April 2020, caused Kenya Revenue Authority (KRA) a revenue shortfall of KSh 122 Billion.
“In September 2020, the Government relaxed COVID-19 containment measures, leading to some normalcy in the economy. As a result, it has become to introduce the Bill to revert to the pre-COVID-19 rates to improve revenue”, read the bill’s foreword.
The approved tax laws drew sharp reactions from Kenyans on social media, who accused parliament of not being sensitive to citizens’ hardships, especially now that COVID-19 has wiped jobs and incomes of many households.
When Treasury first introduced a proposal to increase VAT to 16% VAT, Kenyans grieved and protested. Others moved to Court, forcing parliament to beat a hasty retreat and to 8%. This rate was then increased gradually to 14%.