Kenyan parliament halts COVID-19 related tax relief

NAIROBI, Dec 22 (Reuters) - Kenya’s parliament on Tuesday voted to end tax cuts put in place in April to cushion the economy from the impact of the COVID-19 pandemic, a move lawmakers said would help to plug revenue shortfalls but investors said would hamper a recovery.

The tax cuts were introduced weeks after Kenya reported its first case of the coronavirus and aimed to shield East Africa’s richest economy.

But lawmakers said the cuts were not sustainable, pointing to the finance ministry’s estimate this month that the government will have foregone 65 billion shillings ($595.24 million) in revenue from the tax cuts.

“I am going to surrender 50,000 shillings more every month. Let it go to the government. But let it be utilised efficiently to deliver services to my people and to all of us,” lawmaker John Mbadi said before voting on the changes.

Lawmakers who opposed the tax cut reversal said the pandemic had not subsided and Kenyans still needed help.

Kenya’s economic output declined in the second quarter for the first time since the 2008 global financial crisis. The tourism and agriculture exports, the main hard currency earners, have taken big hits.

Aly-Khan Satchu, the CEO of investment adviser Rich Management in Nairobi, was critical of the move to end the tax cuts.

“We are deploying knee jerk responses ... Right now the economy needs all the encouragement it can get.”

The vote in favour of halting the tax cuts means a reduction of 5 percentage points to the income tax rate for top individual earners and corporations will be reversed to 30%. The value-added tax rate will be restored to 16% from 14% during the first phase of the pandemic.

Parliament voted to keep one of the relief measures. Kenyans earning less than 24,000 Kenyan shillings ($220) will still be granted 100% tax relief.

As of Monday, Kenya had a total 94,614 confirmed coronavirus cases, with 1,644 deaths and 76,060 recoveries, the health ministry’s data showed. ($1 = 109.2000 Kenyan shillings) (Reporting by George Obulutsa. Editing by Jane Merriman Editing by Maggie Fick and Jane Merriman)