Ukur Yatani Tables Bill Requiring Loss-making Firms to Pay Tax

Treasury Cabinet Secretary Ukur Yatani presented to parliament a law which if approved requires the lossmaking firms will pay taxes on their gross earnings from the next financial year starting July 2020.

The proposed changes are contained in the Finance Bill 2020 are geared at addressing low compliance levels.

Presented before the National Assembly, the proposals introduce a new section that will see all persons whose income has not been taxed elsewhere pay tax at a rate of one percent of gross earnings.

The levy will be known as minimum tax targets the corporates, which do not pay tax on their income when they report losses.

Should the bill be approved, the affected parties, most companies, will start paying quarterly taxes on their income on the 20th day of the fourth (April 2021), sixth, ninth, and 12 months — reflecting the tax payment schedule for corporation tax.

The proposals, however, exempt those whose income has been subjected to Section 5 (employment), 6A (residential income tax), 12C (turnover) as well as eighth and ninth schedules of the Income Tax Act, which cover earnings such as capital gains and proceeds from mining or oil exploration.

This means that all firms earning Sh1 million and above will pay taxes to the Kenya Revenue Authority (KRA). The small traders with an annual income of Sh1 million and below exempted from the monthly turnover tax at the rate of one percent of gross sales.

Ukur Yatani made these proposals after the shocking revelation that more than 90 percent of companies failed to pay corporation tax in the financial year ended June 2019. Consequently, KRA swung to action and pointed to some degree of tax evasion at a time when the regulator takes tax compliance very seriously.

KRA data presented to National Assembly in August 2019 showed that out of 401,306 companies registered for corporation tax in Kenya in the period to June, only 33,426 paid taxes on their net income. That translates to a compliance rate of 8.3 percent of the firms eligible to pay taxes from business profits, and worst-performing category when compared to segments such as payroll deductions, excise duty, and value-added tax.