Firms smile as VAT, Paye reduced

There is a relief for companies and workers in three East African Community countries following a decision to lower the VAT and tax on Pay As You Earn (Paye).

In their budget statements for 2020/2021, Kenya, Uganda and Tanzania agreed to lower VAT and exempt lower categories of workers from Paye to cushion them against the effects of COVID-19 measures that were introduced in March.

Rwanda, South Sudan and Burundi are yet to read their budgets.

The VAT refund payments will improve liquidity and cash flows for businesses in the region heavily affected by the pandemic.

Kenya lowered its VAT from 16 percent to 14 percent as proposed by the East African Business Council (EABC), which also called for VAT refunds to companies to enhance funding to businesses.

“The expectation of the private sector is that the EAC budgets for 2020/21 will contain economic stimulus packages that will mitigate the impact of the Covid-19 pandemic on businesses and citizens, and will stimulate economic growth and recovery,” said Peter Mathuki, the chief executive of the EABC.

“The budgets for Kenya, Uganda and Tanzania have incorporated our proposals that will go a long way in stimulating local consumption of goods and services as well as cushion consumers during the period of Covid-19.”

Kenya, which had already reduced tax rates for both corporate and personal relief. “We reduced tax rates for both corporate and personal income (Paye) from 30 percent to 25 percent and provided 100 percent tax relief for persons earning a gross monthly income of up to Ksh24,000 ($225 dollars),” said Treasury Cabinet Secretary Ukur Yatani.