State to defer domestic debt interest payments to free cash for recovery
PANDEMIC: Kenya will defer interest payments on government securities to free cash to address socio-economic challenges brought about by the Coronavirus (Covid-19) pandemic, the Treasury has said.
This is one of the main financial strategies the country is using as it seeks to raise funds for use in rebuilding the economy post the pandemic, the National Treasury said in a strategy document seen on Monday.
Banks, insurance companies and pension funds are the biggest holders of Kenya’s government securities, namely Treasury bills and bonds, which account about $31 billion (Sh3.4 trillion) of Kenya’s $64 billion (Sh7.1 trillion) total public debt.
Interest payment
“This will involve deferment of interest payment on securities held by insurance companies and pension funds for one year.
The deferred interest will be amortised and paid with interest due to be paid in subsequent years,” the document says.
Insurance firms and pension funds hold government securities worth $8.3 billion (Sh924.7 billion) thus the deferred interest payment will see the government free up $663 million (Sh73.9 billion to address financing challenges created by the pandemic.
Treasury Cabinet Secretary Ukur Yatani said the government will implement various measures, including reverting to pre-pandemic pay, to mitigate adverse socio-economic effects of the pandemic and reposition the economy on a steady and sustainable growth trajectory.
Yatani announced last week that taxes cut during the start of the pandemic will revert to normal from January 1.
However, the CS said those earning below Sh24,000 will continue enjoying 100 per cent tax relief by exempting them from Pay As You Earn (PAYE) tax.
The move, he said on Friday, was necessitated by the ease of some of the containment measures and subsequent resumption of normalcy.
The CS said that effective from January 1, 2021, the Corporate Tax rate will revert to 30 per cent from the current 25 per cent.
The individual Income of Tax rate (VAT) will revert to 16 per cent from the current 25 per cent and the Value Added Tax rate VAT will revert to 16 per cent from the current 14 per cent.
Yatani reminded Kenyans that the government is not introducing the new tax rates, but just returning to the prevailing tax rate before the onset of the pandemic.
The Treasury lowered Corporate, PAYE, and VAT rates temporarily in April under the direction of President Uhuru Kenyatta as part of the government’s efforts to cushion Kenyans from the ravages of the pandemic. – Xinhua and PD Reporter
