TAX CHANGES WITH EFFECT 1ST JANUARY 2021 | Ronalds LLP
TAX CHANGES WITH EFFECT 1ST JANUARY 2021

introduction.

Happy New Year from all of us here at Ronalds LLP!

We wish to bring to attention several key tax matters that will affect all taxpayers in the year 2021.

These include the tax changes that were introduced last year by the Finance Act of 2020 and the Tax Laws (Amendment) No. 2 Act of 2020, intended to take effect from 1st January 2021.

Please note however that this tax alert is meant to provide guidelines and does not constitute tax advice

TAX CHANGES WITH EFFECT 1ST JANUARY 2021

INCOME TAX

REINSTATEMENT OF THE TAX RATE

The corporate tax rate has been reinstated from 25% to 30% effective 1st January, 2021.

MINIMUM TAX

A new tax known as minimum tax was introduced at the rate of 1% on gross turnover for entities. This was effective 1st January 2021.

Minimum tax is a base tax which is payable on instalments and shall be due on 20th day of the 4th, 6th, 9th and 12th month of the year of income, just as the case for instalment taxes.

Instalment tax and minimum tax shall be applicable concurrently. Where installment tax is higher than the minimum tax, then installment tax shall be payable in that particular installment, whereas, where the minimum tax is higher than the installment tax, then minimum tax shall be payable in that particular period.

Notes;

The corporate tax rate increases to 30%.

1% Minimum tax is payable on the gross turnover.

Minimum tax is due on 20th of the 4th, 6th, 9th and 12th month of the financial year.

Whichever is higher between the instalment tax and the minimum tax, shall be payable when making an installment payment.

Residential rental income lower threshold is changed from Kshs. 144,000 to Kshs 288,000 per annum.

Residential rental income upper threshold has increased from Kshs. 10 Million to Kshs. 15 Million per annum.

The following category of income shall be exempted from Minimum Tax deductions;

Employment Income.

Income subject to Turnover Tax

Income exempted by the Income Tax Act

Income subject to Residential Rental Income tax

Income of extractive sector

Income subject to Capital Gains Tax

Persons engaged in insurance business

Businesses whose retail pricing is controlled by the government

RESIDENTIAL RENTAL INCOME THRESHOLD

Landlords, take note: Effective 1st January, 2021, the upper threshold of residential rental income is Kshs. 15 Million per annum, up from Kshs. 10 Million. On the other hand, the lower threshold has been increased to Kshs. 288,000 per annum.

DIGITAL SERVICE TAX

Effective 1st January, 2021, Digital Service Tax is now applicable on income from services that are derived or accrued from Kenya through a digital marketplace.

The tax rate applicable is 1.5% of the gross transaction value. Take note that Digital Service Tax is due at the time of the transfer of the payment for the services to a service provider.

Businesses that have changed their operational models and transformed to digital platforms need to take note of this tax amendment.

Notes;

Digital Service Tax is applicable on the gross transactional value.

Digital Service Tax is charged at the rate of 1.5%.

The Commissioner is empowered to appoint agents for purposes of collecting Digital Service Tax

Notes;

Digital Service Tax is applicable on the gross transactional value.