Potential changes in Kenya’s Tax Law

Background

There has been in circulation, in the latter half of this week, a proposed Finance Bill 2024 allegedly in the works. Should the changes in the Bill be implemented, different laws relating to taxes will be amended including the Excise Duty Act, Income Tax Act, Tax Procedures Act and the Value Added Tax Act.

The Excise Duty Act

The Excise Duty Act has the following proposed changes:

1. An Excise Duty Tax of 20% will be applied to services offered on Digital Platforms in Kenya by Non-Residents  including internet services, lending and money transfer services, and gambling services.
2. The Deadline for Payment of Excise Duty for Licensed Alcoholic Beverage Manufacturers has been increased from one day to 5 days from the transfer of the alcoholic beverages from the stock rooms.
3. Family Trusts, which gained popularity partly because they provided a means of inheriting property without taxation are also to be subjected to income tax.
4. All interest earned from infrastructure bonds held by residents are to be taxed whereas those held by non-residents will remain exempted.
5. The introduction of a new system of classification for Excise Duty in compliance with the East African Customs Union Protocol.

The Income Tax.

Perhaps the most controversial amendments the proposed law seeks to introduce are the following changes which will undoubtedly be met with opposition.

1. Introduction of Motor Vehicle Tax to be collected by the insurer at the time of issuing the insurance, to be charged at the rate of 1% of the total value of the vehicle.
2. The inclusion of “creative works” within the definition of “Digital Content” which means the introduction of digital taxes at 5% for residents and 20% for non-residents for income generated from the monetization of content like film productions and online performances.
3. The Introduction of a compulsory withholding tax for suppliers of public entities at the rate of 3% for residents and 5% for non residents.

The two changes that could receive a positive response are:

4. The monthly pension payments of retiree’s are to be exempted from income tax.
5. Contributions to the Social Health Insurance Fund (SHIF), Housing Levy Fund and other categories of contributions are to be computed when generating Personal Reliefs for Tax Payers.

The Tax procedures Act

The Bill proposes to make changes to the procedure of reporting, assessing and paying taxes in the following ways:

1. Where a tax payer objects to the issuing of a Tax assessment, the time the Commissioner of Domestic Taxes has to render a decision on the objection has been increased from 60 days to 90 days.
2. The proposed law clarifies the time-limit within which tax payers who have made over-payments are allowed to seek a refund. Over-payments for income tax refunds can be claimed up to 5 years from the date of over-payment whereas any other tax has a time limit of 6 months.
3. The computation of days to determine statutory time limits for various activities has been changed from calender days to business days, that is, weekends and public holidays are not to be counted.

The Value Added Tax Act

The proposed amendments to the Value Added Tax Act include:

1. An increase of the threshold required for mandatory VAT registration from Kshs 5 Million to Kshs 8 Million.
2. The Transfer of a Business as well as the Supply of Bread have been exempted from Value Added Tax.
3. Previously exempted goods and services are now to be subjected to Value Added Tax including:
   1. In the Tourism sector, importation and assembling of vehicles for transporting tourists, and services offered by tourist and recreational facilities
   2. In the health sector, the construction of, and services offered by hospitals and specialised treatment centres
   3. In gambling, a 16% VAT tax on all gambling services

The Miscellaneous Fees & Levies Act

Another welcome change is the reduction of the Export and Investment Promotion Levy from 17.5% to 2%, albeit with an expanded category of items that will be subjected to the tax. New categories include Alcoholic beverage categories like Vodka, as well as Milk and Milk Products