In Kenya, a finance bill is usually presented to the parliament before the start of a financial year that runs from July to June, laying out government’s fiscal plans. On May 9th 2024, the finance bill 2024 was introduced to the National Assembly, proposing a wide array of tax and administrative measures affecting different tax laws.
– President Ruto’s administration plans to spend Sh3.914 trillion in the new budget cycle that starts in July. To fund this plan, the government hopes to collect Sh3.354 trillion from taxes. This will be made up of Sh2.913 trillion as ordinary revenues while revenues received by state departments and retained to meet expenditures, known as “appropriations-in-aid” is expected to net Sh441 billion.
– In the 2024/2025 bill, the Kenyan government aims to raise $2.7 billion from additional taxes to reduce the budget deficit and state borrowing, as Kenya’s public debt stands at 68 percent of GDP, higher than the 55 percent GDP recommended by the World Bank and the International Monetary Fund.
– The proposed measures to meet revenue targets have triggered protests, as Kenyan citizens troll out in thousands to protest against the proposed financial bill, despite the government’s claims about the necessity of the tax measures so as to fund development programmes and cut public debts.
– Kenyans, who have been struggling to cope with several economic shocks caused by the lingering impact of COVID-19 pandemic, the war in Ukraine, two consecutive years of droughts and depreciation of the currency, launched an anti-finance bill protests after the bill was passed, which escalated into riots, resulting in at least 39 deaths, 200 injuries, and over 100 arrested.
– President Ruto, on June 26, 2024, announced a withdrawal of the financial bill after deadly protest which saw parliament set ablaze a day before. While He announced, on Friday, July 5, 2024, a Sh177 billion budget cut, the closure of the offices of the First Lady & the Deputy President’s spouse, a 50% reduction in government advisors, and suspension of all non-essential travel by state and public officers.
Proposed Tax Measures in the Financial Bill
The Income Tax Act.
- Motor vehicle tax – introduction of a 2.5% rate of the value of motor vehicle.
- Withholding tax on goods supplied to public entities. The applicable withholding tax rate shall be 3% of the amount paid if the payment is to a resident person and 5% if the payment is to a non-resident person.
- Taxation of income from operation of digital marketplace or platform and digital content monetization. The tax will apply at the rate of 20% for non-residents and 5% for residents.
- Repeal of provisions on Digital Service Tax and introduction of Significant Economic Presence Tax, proposing a tax rate of 30% of the deemed taxable profit.
- Minimum top-up tax on certain resident entities that are members of multinational groups.
- Contributions to certain medical funds and the affordable housing levy to be tax deductible expenses.
- 10% Investment deduction on capital expenditure incurred on the purchase of spectrum licence.
- Interest income earned by resident persons from infrastructure bonds to be taxable.
- Taxation of family trusts – the Bill proposes to subject the income of a registered family trust to tax.
The Value-Added Tax Act.
- Application of 16% VAT on certain financial services such as issuing of credit and debit cards, telegraphic money transfer services, foreign exchange transactions, including the supply of foreign drafts and international money orders, cheque handling, processing, clearing and settlement including special clearance or cancellation of cheques.
- Increase of VAT registration threshold from five million kenya shillings to eight million kenya shillings.
- Application of 16% VAT on betting, gaming and lotteries services.
- Scrapping of certain VAT exemptions in the tourism sector.
- Scrapping of certain VAT exemptions in the manufacturing and construction sectors.
The Excise Duty Act.
- Introduction of 20% Excise Duty rate on services offered in Kenya by a non-resident through a digital platform.
- Increase of Excise Duty rate from 15% to 20% on money transfer services offered by (a) banks, money transfer agencies and other financial service providers and (b) cellular phone service providers or payment service providers licensed under the National Payment Systems Act, 2011.
- Extension of timeline for payment of excise duty by licensed manufacturers of alcoholic beverages from 24 hours to 5 working days upon removal of the goods from the stockroom
- Repeal of provisions on automatic adjustment for inflation of excise duty rate
- Alignment of tariff classification of goods under the Excise Duty Act to the East African Customs Union Protocol
The Tax Procedures Act.
- Increase of timeframe for issuance of objection decisions by the Kenya Revenue Authority (KRA) from 60 days to 90 days.
- Relief because of doubt or difficulty in recovery of tax.
- Weekends and public holidays to be excluded when determining statutory timelines under tax laws; the computation of time will be based on business days instead of calendar days.
- KRA empowered to direct taxpayers to integrate their systems with the KRA’s system.
The Miscellaneous Fees and Levies Act.
- Reduction of the rate of Export and Investment Promotion Levy – the Bill proposes to reduce the rate of Export and Investment Promotion Levy on various items from a high of 17.5% on the customs value to a maximum of 2% of the customs value. However, despite the proposed reduced rate of the levy, the proposed list of items on which the levy is applicable has been increased to include items such as vodka, cooking stoves, milk and cream of a fat content by weight exceeding 1% but not exceeding 6%.
