Finance Bill 2020 Proposes Reduction of Turnover Tax to 1%, Intros 1.5% Digital Tax for Online Sales

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Kenyatta

Tax laws, alongside finance regulations, are being revised based on proposals that have been published for the Tax Law (Amendment) Bill, 2020, and the Finance Bill 2020.

These changes have been proposed based on President Kenyatta’s COVID-19 measures that were announced in late March 2020.

The measures are here to cushion Kenyans from the plight of the pandemic that continues to rock all production sectors in Kenya and across the globe.


Before we can look at some of the key proposals (that match the theme of this site), it should be noted that some of the measures have since been put into effect, including the reduction of VAT from 16 percent to 14 percent – although the development is still awaiting any opposition from Parliament.

Additional measures have not been put into action because they must be deliberated by Parliament.

On the whole, the proposal or bill features detailed Coronavirus measures. Some of the proposed elements have also been echoed in the Finance Bill 2020, although word has it that the bill will be merged with the aforementioned Tax Law (Amendment) Bill, 2020.

If the two bills are explored as one, then an agreement from the House and President Kenyatta’s sign will see the bill come into effect on July 1.

Besides trying to legalize measures to overcome the effects of Coronavirus, the proposals are simply trying to get rid of restrictions to various exemptions and reliefs defined under existing tax laws.


Here are some key points from the proposal:

  1. The Finance Act, 2019 introduced, or rather, revised turnover tax. Basically, the tax reintroduced a turnover tax at the rate of 3% of the gross revenue payable by a resident whose business revenue falls under KES 5 million. Now, the bill is proposing key amendments for turnover tax: the tax should be payable for a Kenyan whose annual gross turnover from a business is more than half a million shillings, but not over KES 50 million. This would mean that businesses whose turnover is under half a million will not be compelled to pay turnover tax. The proposal also asks the tax cut from 3 to 1 percent, and apply the same tax to income from incorporated companies.
  2. The bill is also proposing changes in the withholding tax regime. Simply put, the bill wants withholding tax rate increased for dividends paid to non-residents from 10 to 15 percent. Of particular interest is withholding tax on income from marketing, ad services, sale promotion, and transportation of goods. Income from the said services should, according to the proposal, be subject to withholding tax at the rate if 20% of the gross amount payable. This requirement is, however, limited to non-residents.
  3. Proposal to tax online transactions. The digital tax is capped at 1.5%. The proposal tasks even loss-making entities to remit tax based on their sales. All companies would also be liable to a minimum gross sales tax of 1%.

The Tax Law (Amendment) Bill, 2020 has also been explored extensively by two publications that you can read here and here.


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