COVID-19 - ECONOMIC STIMULUS

COVID-19 - ECONOMIC STIMULUS

To prevent movements during the evening, the President has imposed a daily curfew on the movement of non-essential personnel between 7pm and 5am effective Friday 27^th March 2020. The list of critical and essential personnel include:

• Medical professionals & health workers

• National security, administration and co-ordination officers

• Public health and sanitation officers

• Licensed pharmacies and drug stores

• Licensed broadcasters and media houses

• Kenya Power & Lighting Company Ltd

• Food dealers, distributors, wholesalers & transporters of farm produce

• Licensed supermarkets, mini-markets and hypermarkets

• Licensed distributors and retailers of petroleum and oil products and lubricants

• Licensed telecommunication operators and service providers

• Licensed banks, financial institutions and payment financial services

• Fire brigade and other emergency response services

• Licensed security firms

The management of the Kenya Ferry Services is now vested in the National Police Service, the Coast Guard and the National Government Administration Officers (NGAO).

In addition, at the virtual meeting of the East African Community (EAC) held on 25^th March 2020, the following resolutions were made:

• Mandatory quarantine for 14 days for all travellers to the region and 100% exit and entry screenings

• Use of technology for all EAC meetings

• Facilitation of free movement of goods and services in the regions with the following limitations

1.  a maximum of 2-3 crew members per vehicle;
2. ensuring crew members are in good health, screened at point of entry. If there is a risk, decontainment of trucks before proceeding to the final destination, a mandatory 14 days quarantine for the crew members. In such cases, the truck owners will make necessary arrangments for back-up;
3. truck drivers required to declare their final destination and to stop only at designated points;
4. crew for cargo planes and vessels to be determined by the specification of the aircraft and ships and the crew quarantined at designated hotels during their stay.

PROPOSED ECONOMIC INTERVENTIONS

The President directed the National Treasury to implement the following with immediate effect. These measures are aimed at cushioning Kenyans from the economic shocks arising from COVID-19. Some of the proposed measures by the President will require parliamentary approval as mandated by the Laws of Kenya. Our view is that these will become effective from 1^st April 2020.

• 100% tax relief for persons earning a gross monthly income of up to KShs. 24,000. This effectively raises the monthly relief from KShs. 1,408 per month to KShs. 2,991 per month

• The top tax bracket for Pay-As-You-Earn has been reduced from 30% to 25%. This means that monthly income above KShs. 47,059 will be taxed at 25%

• Reduction of corporation tax from 30% to 25%. While the effective date has not been clarified, our view is that this will be for the financial year commencing 1^st January 2020. No changes have been made to taxation of branches of foreign companies, which will continue to be taxed at 37.5%

• Reduction of the turnover tax rate from the current 3% to 1% for businesses where the annual turnover is below KShs. 5 million

• Reduction of VAT from 16% to 14%, effective 1^st April 2020

• The Kenya Revenue Authority (KRA) to expedite payments of all verified VAT refund claims amounting to KShs. 10 billion within 3 weeks; or in the alternative, allow for offsetting of withholding VAT, in order to improve cash flows for businesses

• Allocation of an additional KShs. 10 billion to the elderly, orphans and other vulnerable members of our society through cash-transfers by the Ministry of Labour and Social Protection

• Temporary suspension of the listing with the Credit Reference Bureaus (CRB) of any person or corporate entities whose loan account fall overdue or is in arrears from 1^st April 2020
• Ministries and departments to pay KShs. 13 billion of verified pending bills, within 3 weeks

• KShs. 1 billion from the Universal Health Coverage kitty, be used for recruitment of additional health workers to support in the management of the spread of COVID-19    

  MONETARY MEASURES

• The Central Bank of Kenya (CBK) has lowered the Central Bank Rate (CBR) to 7.25% from 8.25%, which should ideally lead to a reduction in borrowing rates. This may, however, impact return on investment income

• Reduction of the Cash Reserve Ratio (CRR) to 4.25% percent from 5.25%, thereby providing an additional liquidity of KShs. 35 billion to commercial banks

• The Central Bank of Kenya shall provide flexibility to banks with regard to requirements for loan classification and provisioning for loans that were performing as at 2^nd March 2020 and whose repayment period was extended or was restructured due to the pandemic 

While the social and economic impact of COVID-19 is not certain and there is need to act with care and caution to face this first pandemic in the last three generations, the key is to reflect and think how each of our actions will impact our fellow Kenyan brothers and sisters and our loved ones. We need to accept that for each and every one of us, the three buckets, being our economic, physical and spiritual wellbeing need to be in tandem and not isolated and uncoordinated. This is a time to reflect deeply within ourselves on how we can make a positive impact to the world we live in and as to our purpose in life - Our True North. Ashif Kassam, Executive Chairman, RSM Eastern Africa LLP