May/July 1998 Newsletter - Kenya BUDGET 98

The whole thrust of this year's Budget is to reduce expenditure. The Minister has concluded, rightly in our view, that any increases in tax would be counter-productive in terms of revenue collection and hinder the prospects of economic growth.

The main features of the tax proposals can be summarised as follows:
• reduction of the standard rate of VAT from 17% to 16%
• 10% increase in income tax personal belief
• 5% increase in income tax bands
• suspension of presumptive income tax from 1st January 1999
• an income tax and VAT amnesty
• some measures of tariff protection
• stiffer penalties for customs evasion on transit goods
• more East African Co-operation
• restrictions on duty free privileges for NGOs.

Duties on the following items are increased, mainly from 15% to 25%:
• paper and paper products
• cement
• clothing
• fresh and processed fruit and vegetables
• wheat flour
• gas cylinders
• electric cables
• petroleum jelly
• kaolin (5% to 15%).

In addition, the Minister has imposed suspended duties on a number of items. These include:
• fresh and processed fruits and vegetables, and vegetable fats (5%)
• certain types of sugar (20%)
• paper products (10%-20%)
• clothing (5%)
• certain electrical conductors (5%).

The Minister has also reduced duties on a number of specific goods. These include:
• certain types of plastic sheeting for covering greenhouses
• certain chemical compounds such as ammonium nitrate when used for agricultural purposes
• spare parts imported for aircraft operators and maintenance companies
• spare parts imported by private power generators.

The measures proposed include the following:
• the fine for being in possession of uncustomed is increased to three times the value of those goods.
• a new penalty of upto Shs. 1 million will now apply to owners of premises who allow them to be used for selling or storing uncustomed goods
• transporters of transit goods are now required to post a bond of Shs. 1 million with the Commissioner of Customs
• goods removed from bond must now be transported within 30 days
• bidders for goods at auction must now pay a non-refundable deposit of 25% of the value at the fall of the hammer
• the limit for which goods do not require preshipment is raised to US $5000. This is in line with an agreed limit for all countries in the East African Co-operation. More stringent measures are proposed to avoid splitting of consignments to enter under a limit.
• penalties for local pre-shipment inspection are increased from 20% to 25% in respect of motor vehicles and from 10% to 15% for other goods.

• The Airport Passenger Service Charge will now be collected at the time of purchase of the airline ticket with effect from 1st September 1998
• the Road Maintenance Levy is increased by Shs. 1.50 per litre to Shs. 4.80 per litre from Shs 3.30 per litre. A corresponding reduction in excise duty insures no increase in the overall tax burden
• a 50% increase in the level of aviation fees for various licences, services, ratings and certificates required in the aviation industry increase in immigration fees by 25% on average

A proposed Income Tax amnesty will apply to undisclosed income:
• for years of income prior to 1st January 1998 and
• omitted from any return filed before 11th June 1998

In addition:
• the taxpayer has to remit VAT due on such supplies made and not remitted to the Commissioner, but additional tax or penalty will not apply.
• the supplies and imported services shall be declared to the Commissioner before 31st December 1998
• the amnesty would not be applicable to any person who has been assessed or is under inspection or investigation relating to the undisclosed income.

• tax bands widened by 5%
• personal relief increases by 10% (Shs 7,920 pa to Shs 8,712 pa)
• introduction of taxation of fringe benefits by employer at corporate tax rate
• part-time directors who are provided with housing to be taxed on the market rental as a benefit
• the tax deduction for pension, provident and individual retirement fund contributions are increased from Shs 120,000 to Shs 150,000 per year
• presumptive income tax suspended

Import duty and VAT relief is withdrawn in respect of the following items imported by an EPZ company:
• passenger cars and minibuses
• other vehicles (unless used solely in the EPZ)
• fuel, excluding heavy diesel or fuel oil
• vehicle spares, including tyres.