The Tax Amendment Bill, 2020 (the Tax Bill) seeks to amend a number of laws to (amongst other things) address and mitigate the effects of the current COVID-19 pandemic in Kenya. The pandemic has caused widespread disruption to lives and businesses and we welcome Parliament's initiative at introducing regulatory and legislative responses to address issues arising from the pandemic.

In our letter which was submitted to the National Assembly today, we have expressed our concerns with regard to the Tax Bill as follows:

  1. New material amendments introduced:New material amendments which are unrelated to tax matters have been introduced in the Tax Bill yesterday (on 21 April 2020).These relate to (a) contracts, (b) leases and licences, (c) mortgages and borrowings, and (d) employment matters (see sections 499 to 501 of the amended Tax Bill).

    The amendments are entirely unrelated to tax matters and ought to be covered in a separate statute e.g. a Miscellaneous Amendment Act rather than including them in the Tax Bill where they could escape the scrutiny of legislators and affected stakeholders.
  1. No opportunity for public participation on new amendments:The Tax Bill has undergone the 2ndReading in Parliament this morning and is scheduled to undergo the 3rd Reading in Parliament this afternoon (22 April 2020). This, unfortunately, leaves no room for public participation on the new material amendments, contrary to section 5 of the Statutory Instruments Act which requires regulation-making authorities to make appropriate consultations with persons who are likely to be affected by a proposed statutory instrument before making such statutory instrument.
  2. Our high-level key comments on new proposed amendments:
    Based on our limited review of the new proposed amendments, the following is a summary of key issues should be considered:

  3. a) Some provisions are anti-business:a number of the new proposed amendments anti-business and have the risk of stifling investment and free enterprise. They could result in businesses in Kenya that are impacted by the new proposed amendments facing the risk of insolvency. A key weakness is that the provisions do not have a Sunset clause.

    b) Employment Act provisions (see section 501 of Tax Bill):

    • The proposed amendment prohibits employers from declaring redundancies or pay cuts. Unpaid leave can only be permitted if the employee requests which means if the employees fail to request, employees cannot require employees to take unpaid leave.
    • These provisions remove all options from struggling employers. They are perhaps premised on a mistaken presumption that employers have funds to continue sustaining employees' salaries and wages during the COVID-19 period. However, many businesses and employers are facing significant downturns e.g. restaurants and travel agencies have shutdown hence deriving no turnover and therefore unlikely to have funds to continue paying employees at the same rates.
    • If employers who are already struggling are not allowed any options with regard to employees, they are likely to face insolvencies.
    • Allowing employers to have flexibility is the most likely route to limiting job losses. Such flexibility includes: flexi-work, furloughs, allowing employees to go on sabbaticals on no or limited pay, salary cuts so that more people keep jobs. This would ensure that businesses in Kenya are able to keep afloat and would also assist in saving some jobs now and assuring employees that they have jobs to return to when COVID-19 ends.

    c) Provisions on leases and licences (see Paragraph (d) under Section 499 of Tax Bill): The provision prohibits termination of leases and licenses of immovable property in connection with non-payment of rent and other monies(presumably this relates to both residential and commercial premises). This provision has the following shortcomings:

    • They are one-sided and do not consider landlords genuine interests at all e.g. there are landlords who depend on rent, or paying mortgages etc They also amount to excessive interference with private contracts;
    • They are prone to abuse e.g. how do you ensure tenants do not take advantage of this provision and simply stop paying rent even where they are able to?
    • They could have the effect of destroying the real estate/property market and disincentives investors from investing in the industry;
    • They do not take into account how the landlord will be able to continue meeting his obligations under the lease when tenants are not paying rent e.g landlords obligation to maintain the property, insure, provide security and cleaning etc;
    • They treat all tenants equally, including "large tenants" who may not need any protection from Parliament e.g. a tenant renting a KES 250,000 (approx. USD 2,400) per month residential house may not require Parliament's intervention;
    • The provisions (if any) should be limited to low income earners who genuinely need protection.

    d) Provisions on loan and mortgage repayments moratorium on interest and penalties by a lending financial institution and prohibition of certain contractual obligations under existing contracts (sections 499 and 500):

    • the provisions are vague and broadly drafted. They do not take into different categories of borrowers or the relative financial positions of different lending financial institutions - imposing such drastic measures on even smaller financial institutions could jeopardize lenders' whose financial position may not allow them to absorb the sudden cut-off of payments related to their loan portfolios; and
    • The provisions apply to all manner of contracts and could be subject to abuse. They are also one-sided and do not take into account the unique circumstances of the contract or the parties, could be subject to abuse etc.
    • They do not have a Sunset clause.
    • It will likely lead to bank insolvency

Our proposal

In the circumstances, we respectfully submit that the new proposed amendments contained in Sections 499 to 501 should not be included in the Tax Bill but should instead be deleted altogether and passed under a separate statute once legislators and affected stakeholders have had an opportunity to fully consider the proposals and comment on them following public participation.

Finally, many countries are enacting legislation and the Commonwealth is also spearheading an initiative. We should urgently learn from shared experiences.

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