The End of Tax Reliefs and a Tough Beginning

Many Kenyans are looking towards the end of 2020 due to the economic hardships that they have experienced as a result of the Coronavirus pandemic. When the first case was reported in March 2020, the Kenyan government introduced a few measures that sought to increase the citizens’ income while lowering the cost of goods.

Through parliament, President Uhuru introduced laws that gave tax relief to Kenyans, thus, lowering the value-added tax rate from 16 to 14 percent. Kenyans earning a gross monthly income of 24, 000 shillings and below were given 100 percent tax relief while the income tax rate for Pay As You Earn (PAYE) was lowered from 30 percent to 25 percent for other working Kenyans.

These measures combined with a decreased sales levy for business people aimed at cushioning Kenyans from the distressing economic impact of the coronavirus pandemic. However, as we cross into 2021, the government seeks to do away with most of these measures as revenue collection has fallen drastically to hinder the implementation of government programs.

As Kenyans usher in the new year, they should expect the tax reliefs to end within the first month of 2021, which will make the costs of goods and services to increase significantly.

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Effect of VAT increase on prices of goods

Major Changes

First, traders will see an increment in sales tax as they will have to pay 3 percent of their gross sales instead of the 1 percent that they have been enjoying since April 2020.

Second, Value Added Tax will increase from 14 to 16 percent therefore, increasing the costs of basic goods and utilities. Kenyans will be expected to dig deeper into their pockets as they pay for electricity, TV subscriptions, airtime, building materials, appliances, and basic commodities such as flour.

Furthermore, starting from 1st January 2021, Kenyans will no longer enjoy free mobile money transactions of up to 1000 shillings. Central Bank has re-established the transaction charges although Safaricom has stated that they will be imposing lower transaction fees.

However, Mobile money transactions of up to 100 shillings from one person to the other will not be charged. Additionally, money transfers between bank accounts and mobile money wallets will also be free.

Therefore, as Kenyans celebrate the New Year, they should be aware of the changes in taxes and mobile money charges that will affect how they transact money and buy goods and services.