The 2020 Finance Bill is said to be geared towards unlocking more revenue streams for the Government in the midst of low collections from the economic dip caused by the COVID-19 pandemic.

The Bill follows the enactment of the Tax Laws (Amendment) Act, 2020 on 25th April 2020 and is presented as matter of ordinary fiscal budgetary course. It is yet to be approved by the National Assembly having gone through the first reading on Wednesday, 6th May 2020.

Overall, the Bill seeks to amend Kenya’s substantive and procedural tax laws as well as other related laws for various reasons. In this write-up we highlight key amendments to the various laws:

The Income Tax Act

  1. Residential Rental Income Tax – If passed, the range of income in respect of which residential rental income tax applies will be changed from the current Kshs. 144,000/= – Kshs. 10,000,000/= to Kshs. 144,000/= – Kshs. 15,000,000/= p.a.
  2. Minimum tax – The Bill aims to introduce a minimum tax payable at the rate of 1% of gross turnover by persons whose(i) income is not exempt under the Act;(ii) income is not subject to other tax under the Act; and(iii) instalment tax is higher than the minimum tax proposed.
  3. Digital service tax – The Bill introduces a digital service tax on income from services provided through digital market place in Kenya at the rate of 1.5% on the gross transactional value. This tax, paid by a resident or non-resident with a permanent establishment in Kenya, shall be offset against the income tax payable for that year of income. The tax would become payable once the service provider receives payment for the services provided.
  4. Removal of Deductions- The Bill proposes the deletion of some of the deductions that are currently allowed when calculating total income. These include deductions in respect of entrance Fee/Annual Subscription paid to trade associations, capital incurred from the public issue of securities, listing on NSE without raising additional capital, and construction of a public schools, hospitals and roads, as well as club subscriptions paid by employers on behalf of employees.
  5. Registered Home Ownership Savings Plan (RHOSP) – The Bill seeks to repeal the provisions limiting deductions of any sums contributed to a registered or unregistered pension, saving, or provident scheme or fund from a person’s total income. 
  6. The Bill also intends to alter the Income Tax status of the following from being tax-exempt to being taxable: the income of a RHOSP, NSSF, and income from employment paid in the form of bonuses, overtime and retirement benefits. This is a major proposal that has generated a lot of controversy especially with respect to taxation of retirement benefits. 

The Value Added Tax Act, 2013

If passed, the law will require that as a condition to deducting input tax, a registered supplier shall declare the respective sales invoice in a VAT return. This condition shall have to be met before the purchaser is entitled to a claim of the input tax. It also proposes that ambulance services be exempt from VAT.

The Tax Procedures Act, 2015

In an ambitious but cautiously worded clause aimed at encouraging tax disclosure, the Bill recommends a voluntary tax disclosure programme where a person discloses their tax liabilities so that the Commissioner grants them relief from penalties and interests. To do this, a taxpayer will need to make an application to the Commissioner, voluntarily disclosing all related material facts with respect to tax liabilities that accrued within a period of 5 years prior to 1st July 2020. The Commissioner is empowered to grant the relief sought if satisfied with the facts disclosed. To encourage disclosure, the person who makes such disclosure may not be prosecuted for the liability disclosed. However, as a condition to the grant of the relief, the said person shall not seek any other remedy including the right to appeal with respect to the taxes, penalties and interest remitted by the Commissioner. However, should the Commissioner withdraw the relief, the person has a right to appeal against that decision.

Capital Markets Act Cap. 485A

The Bill proposes to amend the Act to empower CMA to “licence, approve and regulate private equity and venture capital companies that have access to public funds”. This is seen as part of the government’s efforts to encourage investment by pension funds in PE and venture capital space that is regulated and offers protection for the pension funds.

Kenya Revenue Authority Act, 1995

The Bills seeks to amend the Kenya Revenue Authority Act to introduce a limitation of action provision, whereby, legal actions against the Authority are to be instituted within a period of 12 months from the date of the act, neglect or default. Where there is a continuous injury, they are to be instituted within six months from the cessation of the act. This is aimed at limiting the number of disputes that the Authority is engaged in but is likely to face opposition given that certain wrongs may be occasioned by the authority only to be discovered several years later. 


A review of the Bill reveals that its primary focus is to increase revenue collections as opposed to addressing the economic dip that has been caused by the pandemic despite its attempt to offer relief to individuals and businesses. Some experts have warned that the Bill risks reversing some of the gains introduced last month through the Tax Laws (Amendment) Act.  As discussed above, some of the proposals will need to be relooked at to ensure they do not impose a further burden to the many Kenyans still experiencing difficulties arising from the pandemic. 

Ivyn Makena and Ann Yvonne

DisclaimerThis article is intended for general knowledge only. For substantive legal advice on this, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it.



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