A recent High Court Judgment declared Section 13(2) of the Income Tax Act, Chapter 470 of the Laws of Kenya, unconstitutional.
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The Business Laws (Amendment) Bill, 2024 (the Bill) was recently tabled before the National Assembly. The Bill seeks to, among other things, amend the Land Act, Chapter 280 of the laws of Kenya (the Land Act) by reducing the notice periods required to be issued under the Land Act in relation to the enforcement of charges over affordable housing units.
These proposed changes are likely to disincentivise the granting, by borrowers, of security over affordable housing units and particularly over units that form matrimonial property or borrower’s residence, as the legal periods within which those borrowers are allowed to remedy defaults will be slashed.
On the flip side, the proposed changes may incentivise lenders to enter into agreements with the Affordable Housing Board for the financing of the off-take of affordable housing units. With faster recovery periods, lenders will also be able to free up capital faster, therefore increasing lending capacity. With the reduction of remedy periods, however, the probability of litigation is higher, as chargors are likely to resort to courts to seek relief against enforcement.
On 11 December 2024, the President assented into law the Tax Laws (Amendment) Bill, 2024 (the Tax Laws Amendment Act) and the Tax Procedures (Amendment) Bill, 2024 (the Tax Procedures Amendment Act together with the Tax Laws Amendment Act, the Acts). The Acts will amend the Income Tax Act, the Value Added Tax Act (VAT Act), the Excise Duty Act, the Miscellaneous Fees and Levies Act, and the Tax Procedures Act.Â
The Tax Laws (Amendment) Act, 2024 shall be effective from 27 December 2024.
Income Tax Act (Cap. 470) (the Income Tax Act)
Amendment
This amendment provides that the following benefits will not be included as taxable income for employees :
Implication
This is a welcome move as it reflects the increase in the cost of living. In addition, an increase in the amount that an employer could contribute for an employee to a registered pension scheme is likely to incentivize employees to make larger pension contributions for their retirement.
Amendment
This amendment exempts from tax any amounts paid or granted to public officers as reimbursement for expenses incurred in an official capacity pursuant to any written law or statutory instrument with effect from 27 July 2022, regardless of the ownership or control of any assets purchased with those funds.
Implication
This amendment offers significant tax relief for public officers as there is no limit to the tax-free amount that can be claimed as a reimbursement. However, there is a potential risk that some individuals might misuse this provision to claim non-official expenses given the tax-exempt status.
It should also be noted that this provision was not contained in the Tax Laws (Amendment) Bill.
Amendment
This amendment provides the following as allowable deductions in determining the taxable income of an individual:
Implication
This amendment addresses concerns relating to the negative impact that contributions to both the Social Health Insurance Fund and the Affordable Housing Levy have had on the net earnings of employees. To this end, the amendment allows such contributions to be deducted before arriving at the taxable income of an employee. This will lead to a reduction in the pay as you earn (PAYE) payable by employees and, therefore, ultimately lead to an increase in the net pay of employees.
This was one of the proposals that was contained in the Finance Bill 2024.
Amendment
This amendment increases the limit of the interest deductible with respect to a loan taken towards the purchase or improvement of a home utilised for residential purposes from Kenya Shillings three hundred thousand (KES 300,000) to Kenya Shillings three hundred and sixty thousand (KES 360,000) per year of income.
Implication
This amendment is designed to incentivise persons to take up loans to purchase homes. In turn, the interest paid on such loans up to KES 360,000 per annum or KES 30,000 per month will be an allowable deduction on the income of the person which reduces the income tax payable by the person.
Amendment
This amendment increases the limit of the amount deductible with respect to contributions to a registered pension or provident fund from Kenya Shillings two hundred and forty thousand (KES 240,000) (which is KES 20,000 per month) to Kenya Shillings three hundred and sixty thousand (KES 360,000) which translates to Kenya Shillings thirty thousand (KES 30,000) per month of service.
In addition, employer contributions to a registered pension fund, registered provident fund or individual retirement fund for its employees are tax deductible provided that the tax-free limit has not been exceeded by the employee.
Implication
This amendment will encourage individuals to save more for their retirement since the provision allows a higher deduction on the income of a person. The effect is that individuals will get to increase their retirement savings whilst at the same time reducing the income tax payable on their earnings.
Amendment
This amendment deletes the existing provisions of Section 34 of the Income Tax Act and now provides that all tax rates will be specified in the Third and Ninth Schedules of the Income Tax Act.
Implication
This amendment ensures that all tax rates are consistently referenced in one place, reducing confusion and potential discrepancies in the application of tax rates.
Amendment
This amendment exempts from income tax the payment of pension benefits to a person upon attainment of the retirement age determined by the rules of their respective registered retirement scheme (whether a registered pension fund, registered provident fund, registered individual retirement fund, public pension scheme or the National Social Security Fund). In addition, the exemption shall also apply to:
Withdrawals over the tax-free limits made before the lapse of the 20 years will be subject to withholding tax. In this regard, amounts above the tax-free limit, which exceed KES 388,000 are subject to 30% withholding tax.
Implication
This amendment encourages saving for retirement through a registered scheme and prevents early withdrawals due to the conditions for the exemption such as the requirement for withdrawal after twenty years from the date of registration as a member of the fund. Previously, the only amounts that were exempt from tax were monthly pensions granted to persons aged 65 years or more.
Amendment
The Act maintains the exemption on interest income paid on infrastructure bonds. The Bill had previously proposed for it to be subject to withholding tax of five per cent (5%) when paid to both resident and non-resident persons.
Implication
The tax exemption reduces the cost of borrowing for issuers, allowing them to finance projects at lower interest rates.
Amendment
This amendment exempts the income earned by non-resident contractors, sub-contractors, consultants or employees involved in the implementation of a project financed through a one hundred per cent grant under an agreement between the Government and a development partner, provided that the person (the non-resident contractors, sub-contractors, consultants or employees) maintain their status as non-residents for the tenure of the agreement. Any other income earned by the non-resident person not directly related to the project shall be subject to tax.
Implication
This amendment encourages the involvement of foreign expertise and resources in developmental projects. This measure reduces the cost burden on development partners and ensures that funds allocated for such projects are maximized for their intended purposes rather than being diminished by tax obligations.
Amendment
This amendment provides for payment of capital gains tax (CGT) at a rate of five per cent on any gain arising on the transfer of investments whereby the Nairobi International Financial Centre (NIFC) Authority certifies that:
Implication
The amendment encourages investment in Kenya. Since the investment would be locked in for 5 years, the sums invested will be used to support economic development in Kenya and in return, the investor, upon exit would pay CGT at a rate of 5% instead of 15%.
Amendment
This amendment subject to taxing the income of a registered family trust. Previously, both the income and principal sum of a registered family trust were exempt from income tax.
Following this amendment, only the principal sum of a registered family trust is exempt from tax.
Implication
Whilst the exemption was good, distributions were then subject to tax at the highest tax rate of up to 35%. With the tax, distributions will not be subject to further tax, so this is not an unwelcome amendment.
Amendment
This amendment deletes the penalty levied for failure by EPZ enterprises to submit an annual return.
Implication
This provision has been deleted as it is already provided for under the Tax Procedures Act.
Amendment
This amendment lowers the threshold for investments that qualify for investment deductions from Kenya Shillings two billion to Kenya Shillings one billion.
Implication
The lower threshold will ensure that more investments are now able to enjoy the investment deductions. Investment deductions are incentives for investments made in manufacturing (whether the construction of a building used for manufacture or machinery used for manufacture) and hotel buildings where such investments are subject to investment allowances of up to 150%, subject to the applicable conditions.
Amendment
This amendment provides that where a resident or a non-resident person being the owner or operator of a digital marketplace or platform makes or facilitates payment in respect to digital content monetisation, property or services, the amount thereof shall be deemed to be income which was accrued in or derived from Kenya.
A platform is defined as a digital platform or website that facilitates the exchange of a short-term engagement, freelance or provision of a service between a service provider who is an independent contractor or freelancer and a client or customer.
Having deemed such income to be accrued or derived from Kenya, the Amendment requires that the income that arises from the making or facilitating of payments be withheld at a rate of five per cent (5%) if the payment is made to a resident person and twenty per cent (20%) where the payment is made to a non-resident person.
Implication
This amendment is ambiguous since it is not clear whether what it seeks to tax is the sum arising from the underlying transaction between the service provider and a client (where the relevant transaction takes place over a platform) or is the sum that is derived by the platform owner by making and facilitating payments over the digital marketplace or platform.
We do note that the National Assembly, in the public participation process, indicated that the tax is intended to apply to the platform or digital marketplace owner which suggests that the income derived by such person from making or facilitating payments would be subject to withholding tax. It is not clear why such an amount would be subject to withholding tax, yet it was already subject to digital service tax which has now been replaced by the significant economic presence tax.
Additional amendments are needed in order to clarify these provisions.
Amendment
This amendment repeals the provisions on DST and introduces a tax known as SEP tax. The SEP tax will be payable by a non-resident person whose income from the provision of services is accrued in or derived from Kenya through a business carried out over a digital marketplace.
Currently, non-resident persons are liable to pay DST at the rate of 1.5% of the gross turnover. The amendment now stipulates that the effective tax rate is 3%. This rate is determined as 30% of the deemed taxable profit, which itself is calculated as 10% of the gross turnover earned by the non-resident.
Persons who shall be exempt from the SEP tax are:
The SEP tax is due to the KRA on or before the 20th day of the month following the end of the month in which the service was offered.
Implication
The key difference is that the tax burden for non-residents under the SEP tax will be significantly higher at the rate of three per cent (3%) gross revenue as opposed to the DST which is applicable at the rate of one point five per cent (1.5%) of the gross revenue.
In addition, the DST regime did not have exemptions which have now been introduced under the SEP regime, most notably, for non-residents with an annual turnover of less than Kenya shillings five (5) million. However, an amendment should also be made to the VAT Act to ensure that non-resident persons providing services over the internet, digital marketplace or electronically are also not required to register for VAT where their annual turnover is less than Kenya shillings five (5) million. This will ensure consistency.
This amendment was one of the proposals that was contained in the Finance Bill 2024, and which has now been reintroduced.
Amendment
This amendment introduces a minimum top-up tax payable by a covered person where the combined effective tax rate for that person for a year of income is less than fifteen per cent (15%).
The effective tax rate for a covered person shall be determined as follows:
Effective tax rate = (sum of all the adjusted taxes/ sum of all net income or loss for the year of income) *100%
The amount of tax payable shall be determined as follows:
The amount of tax payable = (15% of the net income or loss for the year of income of a covered person less the combined effective tax rate for the year of income) multiplied by the excess profit of the covered persons.
Covered persons means a resident person with a permanent establishment in Kenya who is a member of a multinational group, and the group has a consolidated turnover of Euros seven hundred and fifty million (EUR 750,000,000) or more in the consolidated financial statements of the ultimate parent entity in at least two of the four years of income immediately preceding the tested year of income.
The following persons shall be exempt from minimum top-up tax:
Adjusted covered taxes means taxes recorded in the financial accounts of a constituent entity for the income, profits or share of the income or profits of a constituent entity where the constituent entity owns interests, and includes taxes on distributed profits, deemed profit distributions under the Income Tax Act subject to such adjustments as may be prescribed.
Net income or loss means the sum of net income or loss for the year of income after deducting the sum of the losses of a covered person as determined under recognised accounting standards in Kenya.
Excess profit means the net income or loss of a covered person for the year of income less:
Provided that the employee cost and book value of tangible assets may be adjusted as prescribed in regulations.
Implication
This amendment is based on the Global Anti-Base Erosion Rules designed to ensure that multinationals pay a minimum level of tax in each jurisdiction. This is one of the proposals that was contained in the Finance Bill 2024. It is unclear how much taxes this provision will yield, noting the high-income thresholds.
Amendment
These amendments repeal the affordable housing relief and the post-retirement medical fund relief.
Implication
These reliefs have been deleted since payments made with respect to affordable housing and contributions made to a post-retirement medical fund are now allowable deductions.
Amendment
This amendment widens the scope of withholding tax to:
The requirement to deduct withholding tax shall apply whether the payment is made to a resident person or a non-resident person with or without a permanent establishment in Kenya.
The public entity shall deduct withholding tax at the rate of zero-point five per cent (0.5%) of the payment if the payment is to a resident person or a non-resident person with a permanent establishment in Kenya and five per cent (5%) if the payment is to a non-resident person.
The withholding tax rate with respect to the sale of scrap is one point five per cent (1.5%) of the gross amount, whether paid to a resident person or a non-resident person.
Implication
This amendment seeks to widen the tax base by widening the scope of withholding tax. Since withholding tax is an advance tax for resident and non-resident persons with permanent establishment in Kenya, it is expected that this provision will enhance tax compliance since a portion of the tax will be collected upfront. This will reduce risk evasion and reduce the administrative burden on the revenue authority for tax collection. Â
Amendment
The definition of royalty has been amended to include ‘any software, proprietary or off the shelf whether in the form of licence, development, training, maintenance or support fees.’
Implication
This amendment imposes withholding tax on the right to use software (whether proprietary or off the shelf) in the form of a licence, development, training, maintenance or support fees. This provision presents an interesting divergence from the decision of the High Court in Seven Seas Technologies Limited v the Commissioner of Domestic Taxes which held that for a software-related payment to amount to a royalty that is subject to withholding tax, the payer must have acquired any or all of the rights that enable them to commercially exploit the software as envisaged under section 26 of the Copyright Act. These rights include the exclusive right to reproduce the software in any material form and the exclusive right to translate or adapt the software.
Amendment
The definitions of “individual retirement fund,” “pension fund,” and “provident fund” have been amended, and new terms have been introduced: “registered retirement fund,” “registered pension fund,” and “registered provident fund” which in this case means where the relevant trust deed of the fund is registered with the Retirement Benefits Authority.
Implication
The implication of this amendment is that it eases the administrative requirements of pension funds, retirement funds etc., which would have to seek registration with the KRA in addition to seeking registration with the Retirement Benefits Authority. This amendment simplifies the registration process for such funds.
Value Added Tax Act (Cap. 476) (the VAT Act)
Amendment
This amendment introduces a new requirement to determine the time of supply for exported goods. This is the time when the registered person has obtained the certificate of export, or such other equivalent documents issued by Customs.
Implication
Exported goods are zero-rated for VAT purposes which means that in most cases, the taxpayer will be liable for a refund on the input taxes incurred on making that export supply. Therefore, the rationale of the amendment is to ensure that a person can only make the VAT declaration with respect to an export when goods have been exported. In such a case, customs documentation is a reliable way of determining whether an export has taken place.
Amendment
This amendment provides that a person is allowed to claim input VAT relief which arose due to the change of status of a supply. This would arise for example if the supply was taxable at the standard rate, however, due to a change of law, the supply is zero-rated or exempted for VAT purposes. In such circumstances, the input VAT incurred in making that supply is no longer claimable and therefore the person is in a permanent VAT credit position. The amendment provides that the reference date of the change of status is with effect from 01 July 2022.
The amendment also provides that the input VAT relief application should be made within six months of the effective date of the Tax Laws (Amendment) Act.
Implication
This is a welcome amendment since it allows input VAT relief to be made where such input VAT is not claimable due to a change in status of supplies. We note that this is an amendment to the proviso under section 17 (5) of the VAT Act which provides for VAT refunds therefore, the practical effect would be that persons affected would be able to apply for a refund for the input VAT arising from the change of status.
Amendment
This amendment deletes the input VAT apportionment rules. Previously a taxpayer who made:
Going forward, persons will be allowed to claim input VAT to the extent that it is incurred to generate taxable supplies.
In addition, the VAT Act has been amended to delete provisions that permitted manufacturers to claim input tax deductions for taxable supplies made to official aid-funded projects approved by the Cabinet Secretary under the First Schedule.
Implication
The deletion of the apportionment thresholds removes the automatic allowance of full or no input tax credit based on the apportionment formula.
Manufacturers will no longer benefit from input VAT deduction on supplies to official aid-funded projects. This change raises the cost of participation in aid-funded projects and may discourage local suppliers from engaging in such projects since supplies made to an official aid-funded projects are exempt from VAT. This means that the input VAT incurred will not be claimable.
Amendment
The Act amends the VAT exemption available for investment in the manufacturing sector by including the proviso that the exemption is only applicable where the value of the investment is not less than KES 2 billion and the exemption was granted before 1 January 2024 and shall apply for twelve months from 27 December 2024.
Implication
This amendment increases the threshold to obtain an exemption for investments made in the manufacturing sector and seems to be in line with the Government’s objective of doing away with exemptions that the Government does not deem necessary.
Amendment
The Act amends section 65 of the VAT Act to expand the application of the East African Customs and Management Act for VAT purposes to exported goods.
Implication
This clarification is welcome as it provides that the East African Community Customs Management Act, 2004 is applicable to both imported and exported goods.
Amendment
This amendment exempts the transfer of business as a going concern from VAT.
Implication
The application of VAT on the transfer of business as a going concern at the standard rate of sixteen per cent (16%) increased the cost of such transfers as the buyer would incur the VAT costs and in addition, where the buyer makes exempt supply, not be eligible to claim the input VAT. In addition, the imposition of VAT on a transfer of business as a going concern would trigger cash flow problems especially where the value of the undertaking was significantly high.
Since the transfer of shares is exempt from VAT, to save on the additional VAT cost, transaction parties have, in most instances opted for the transfer of shares when acquiring a business. This amendment ensures that parties can transfer a business and remain VAT-neutral.
Amendment
This amendment reclassifies the following items from zero-rated to exempt:
Implication
The effect of the amendment is to increase the cost of the products as the input VAT incurred would not be claimable.
This amendment seeks to exempt the following goods from VAT:
Implication
The effect of the amendment is to increase the cost of the products as the input VAT incurred would not be claimable.
Capital goods that the cabinet secretary determines promote investment in the manufacturing sector are exempt from VAT provided that the value of the investment is not less than Kenya Shillings two billion. The amendment proposes that where the exemption was granted before 01 January 2024, it shall continue to apply for 12 months after the effective date of the Tax Laws (Amendment Act).
Implication
The above amendment could imply that the provision was underutilised and therefore, the exemption will come to an end unless further extended or replaced by a new provision.
All goods including material supplies, equipment, machinery and motor vehicles for official use by the Kenya Defence Forces, the Defence Forces Welfare Services, the National Intelligence Service and the National Police Service are exempt from VAT. Previously, the exemption only related to the Kenya Defence Forces and the National Police Service.
Implication
These exemptions are designed to reduce the tax burden on the budgets of these organisations so that they can procure supplies more cost-effectively.
Excise Duty Act (Cap. 472)
Amendment
A digital lender is defined as a person holding a valid digital credit provider licence issued by the Central Bank of Kenya.
It also provides for the definition of ‘fees charged by digital lenders’, whose tax rate is maintained at 20%, to include any fees, charges or commissions charged by digital lenders relating to their licensed activities but does not include interest, pre-loan interest, post-loan interest, return on loan or any share of profit or an insurance premium or premium based or related commissions specified in the Insurance Act or regulations made thereunder.
Implication
Previously, the terms “digital lender” and “fees charged by digital lenders” were not explicitly defined in the Excise Duty Act. This amendment ensures clarity in the understanding of which entities qualify as digital lenders and what specific fees charged by these digital lenders are subject to tax.
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Amendment
The Act introduces excise duty on excisable services offered in Kenya by a non-resident through a digital platform that would be payable by the non-resident person offering the service. The excise duty would be payable by the non-resident person offering the service.
Implication
This provision would bring into the tax base, non-residents offering the abovementioned services in Kenya through a digital platform which would ensure equality with the residents offering the services that are required to pay the same amount of excise duty. The non-resident would be required to collect the excise duty on the offering of the service and remit the same to the KRA.
Amendment
This amendment provides for remission of excise duty on spirits made from sorghum, millet, cassava or any other agricultural products (excluding barley).
Implication
This amendment incentivizes the use of locally sourced raw materials. This supports smallholder farmers and boosts the agricultural sector. Moreover, local spirit producers benefit from reduced production costs, enhancing their competitiveness in the market. This can lead to increased production and job creation.
Amendment
The Excise Duty Act provided that a licenced manufacturer of alcoholic beverages was liable to pay excise duty within 24 hours upon removal of goods from the stockroom. The amendment extends the period from 24 hours to the 5th day of the following month.
Implications
This is a welcome amendment as it relieves cash flow challenges faced by licenced manufacturers of alcoholic beverages who were required to make excise duty payments within 24 hours of removal of goods from the stockroom.
Amendment
The Act has introduced the following changes to the rates of excise duty:
|
Item |
Description |
Old Rate |
New Rate |
|
1.      |
Imported sugar excluding sugar imported by a registered manufacturer and raw sugar imported for processing by a licensed sugar refinery |
Shs. 5 per Kg |
Shs. 7.50 per Kg |
|
2.      |
Locally assembled electric vehicles |
– |
Exempted |
|
3.      |
Cigarette with filters (hinge lid and soft cap) |
Shs. 4,067.03 per mile |
Shs. 4,100 per mile |
|
4.      |
Cigarettes without filters (plain cigarettes) |
Shs. 2,926.41 per mile |
Shs. 4,100 per mile |
|
5.      |
Products containing nicotine or nicotine substitutes intended for inhalation without combustion or oral application but excluding medicinal products approved by the Cabinet Secretary responsible for matters relating to health and other manufactured tobacco and manufactured tobacco substitutes that have been homogenized and reconstituted tobacco, tobacco extracts and essences |
Shs. 1,595 per kg |
Shs. 2,000 per kg |
|
6.      |
Liquid nicotine for electronic cigarettes |
Shs. 70 per millilitre |
Shs. 100 per millilitre |
|
7.      |
Imported Electric transformers and parts of tariff codes 8504.10.00, 8504.21.00, 8504.22.00, 8504.23.00, 8504.31.00, 8504.32.00, 8504.34.00 |
N/A |
25% |
|
8.      |
Imported printing ink of tariff 3215.11.00 and 3215.19.00 but excluding those originating from East African Community Partner States that meet the East African Community Rules of Origin |
N/A |
15% |
|
9.      |
Imported ceramic sinks, wash basins, wash basin pedestals, baths, bidets, water closet pans, flushing cisterns, urinals and similar fixtures of tariff heading 6910 |
N/A |
5% of the customs value of KES 50 per kg |
|
10.   |
Imported Float glass and surface ground or polished glass, in sheets, whether or not having an absorbent, reflecting or non-reflecting layer, but not otherwise worked of tariff 7007 |
N/A |
35% of the customs value of Shs. 200 per kg |
|
11.   |
Imported ceramic flags and paving, hearth or wall tiles; unglazed ceramic mosaic cubes and the like, whether or not on a backing; finishing ceramics of tariff 6907 |
N/A |
5% of the custom value of Shs. 200 per kg |
|
12.   |
Coal |
N/A |
2.5% of the custom value |
|
13.   |
Imported sugar confectionary of tariff heading 17.04 |
Shs. 42.91 per kg |
Shs. 85.82 per kg |
|
14.   |
3907.99.00 – Imported Saturated polyester |
N/A |
20% |
|
15.   |
3905.21.00 – Imported polymers of vinyl acetate/vinyl esters |
N/A |
20% |
|
16.   |
3903.90.00 – Imported emulsion-styrene acrylic |
N/A |
20% |
|
17.   |
Wines including fortified wines, and other alcoholic beverages obtained by fermentation of fruits |
Shs. 243.43 per litre |
Shs. 22.50 per centilitre of pure alcohol |
|
18.   |
Beer, Cider, Perry, Mead, Opaque beer and mixtures of fermented beverages with non-alcoholic beverages and spirituous beverages of alcoholic strength not exceeding 6% |
Shs. 142.44 per litre |
Shs. 22.50 per centilitre of pure alcohol |
|
19.   |
Beer, Cider, Perry, Mead, Opaque beer and mixtures of fermented beverages with non-alcoholic beverages and spirituous beverages manufactured by licensed small independent brewers. “Small independent brewer” means manufacturers of beer, cider, perry, mead, opaque beer, wine, fortified wines and mixtures of fermented beverages with non-alcoholic beverages manufactured whose production volume does not exceed 150,000 litres per month. |
N/A |
Shs. 10 per centilitre of pure alcohol |
|
20.   |
Spirits of undenatured ethyl alcohol; spirits liqueurs and other spirituous beverages of alcoholic strength exceeding 6% |
Shs. 356.42 per litre |
Shs. 10 per centilitre of pure alcohol |
|
21.   |
Imported self-adhesive plates, sheets, film, foil, tape, strip and other flat shapes, of plastics, whether or not in rolls of tariff number 3919.90.90, 3920.10.90, 3920.43.90, 3920.62.90 and 3921.19.90 but excluding those originating from East African Community Partner states that meet the East African Community Rules of Origin |
N/A |
25% or Shs. 75 per kg whichever is |
|
22.   |
Fees charged by digital lenders |
20% |
No new rate proposed. |
|
23.   |
Fees charged on advertisements on television, print media, billboards, and radio stations on alcoholic beverages, betting, gaming, lotteries, and prize competition |
15% |
Introducing excise duty on advertisements on the internet or social media; on alcoholic beverages, betting, gaming, lotteries, and prize competition. |
|
24.   |
Betting |
12.5% |
15% |
|
25.   |
Gaming |
12.5% |
15% |
|
26.   |
Prize competition |
12.5% |
15% |
|
27.   |
Lottery (excluding charitable lotteries) |
12.5% |
15% |
|
28.   |
Excise duty on advertisements on social media on alcoholic beverages, betting, gaming, lotteries and prize competition. |
– |
15% |
TAX PROCEDURES ACT (Cap. 469B)
Amendment
This amendment introduces section 37F of the Tax Procedures Act to allow taxpayers to obtain relief in the case of difficulty or doubt in recovery of tax. According to this section, the KRA may refer cases to the Cabinet Secretary when it is determined that:
Implication
This amendment provides taxpayers with a way to navigate challenging tax compliance issues by granting the Cabinet Secretary the authority to approve full or partial relief of the tax due. It aims to address situations where strict enforcement of tax recovery might be impractical or unfair, thereby introducing flexibility into tax administration.
Amendment
The Act extends the running of the tax amnesty until 30 June 2025. This will enable taxpayers who had not paid principal taxes prior to 31 December 2023 to pay such principal tax without any penalties and interest accruing until 30 June 2025.
Implication
This amendment is a result of the successful performance of the initial amnesty program that was run until 30 June 2024. In this regard, the Government has made a move to grant taxpayers more time to regularise their tax affairs.
Amendment
This amendment allows taxpayers who have overpaid their taxes to apply to the Commissioner for either an offset against their tax debts and future liabilities, including instalment taxes and input VAT or claim a refund of the tax. The refund application may be made in the case of income tax within five years from the date the tax was overpaid and in the case of any other tax, within 12 months from the date the tax was overpaid.
Implication
This provision is beneficial to taxpayers as it gives taxpayers options on how to treat tax overpayments. However, it should be noted that refunds are quite onerous to obtain due to backlogs and a lack of sufficient budgetary allocations.
Amendment
Section 59A of the Tax Procedures Act empowers the KRA to require a person to integrate the electronic tax system with iTax, facilitating the submission of electronic documents and enhancing revenue collection. It allows the Commissioner to require businesses with a turnover exceeding five million shillings to integrate their systems for up to one year. Non-compliance can result in penalties of up to one hundred thousand shillings per month.
Implication
The integration of these systems will streamline the transmission of electronic documents which will enhance tax compliance and reduce administrative burdens on tax compliance on the KRA.
Amendment
This provision amends the Tax Procedures Act to exclude Saturdays, Sundays, and public holidays from the computation of the period for lodging tax objections and appeals to the Tax Appeals Tribunal, the High Court and the Court of Appeal.
Implication
The provisions provide taxpayers and the KRA with more time to lodge documents related to tax disputes. However, this provision also delays the timely resolution of tax disputes leading to uncertainties which affect cashflows and financial planning among other issues.
Amendment
This amendment provides that any agreements or treaties relating to the imposition of import duty on (a) imported steel billets and (b) imported wire rods are not applicable for two years after the commencement of the Act.
Implication
This amendment suspends the application for agreements imposing import duties on wire rods and steel billets. The imposition of import duties is a contentious issue as it may strain international trade relations which could be the reason as to why the provision suspends the application of the treaty or agreement.
Amendment
This amendment sets out the contents that must be contained in a tax invoice, which includes the supplier’s name, address, and PIN.
In addition, the Tax Procedures Amendment Act provides that where a supply is received from a small business or small-scale farmer whose turnover does not exceed KES 5,000,000, the purchaser shall issue a tax invoice for purposes of ascertaining tax liability.
The Tax Procedures Amendment Act also provides that withholding tax payments may be excluded from an electronic tax invoice.
Implication
These amendments are seen as a move by the Government to clarify the position on electronic tax invoices and also clarify the concerns that have previously been raised with respect to the uptake of electronic tax invoices by small-scale business persons.
Amendment
The Tax Procedures Amendment Act provides that withholding VAT will not be applicable to registered manufacturers whose value of investment on 31 December 2024 is at least Kenya Shillings Two Billion.
In addition, section 42A of the Tax Procedures Act is amended to create an offence where a withholding VAT agent fails to withhold tax or fails to remit tax and sets a penalty of 10% of the amount not withheld or remitted.
Implication
This change aims to ensure better compliance and accountability among withholding tax agents.
Amendment
The Act amends the First Schedule of the Tax Procedures Act to include, among transactions for which a PIN is required, registration of an employee working remotely outside Kenya for an employer in Kenya save for an employee working outside Kenya for the national carrier.
Implication
It is not clear what this provision hopes to achieve since already employment income earned by non-residents should be subject to Pay as You Earn (PAYE) in Kenya.
Miscellaneous Fees and Levies Act (Cap 469C)
Amendment
This amendment increases the Railway Development Levy from 1.5% to 2%.
Implication
Importers will face higher costs due to the increased levy, which may lead to higher prices for imported goods. This could affect businesses that rely heavily on imports and potentially lead to increased costs which will ultimately be passed onto consumers.Â
In the December edition of our quarterly restructuring bulletin, we highlight:
• Economic and corporate updates.
• Insolvency statistics and the distressed companies in the press.
• Interesting developments in case law.
• Regulatory updates
The Business Laws Amendment Bill 2024 may have unintended consequences for the foreign debt investment landscape in Kenya.
Continue readingIn a Judgement delivered by the Tax Appeals Tribunal on 8 November 2024 in the matter of Paula Kendi Weru vs Commissioner of Legal Services & Board Coordination, the Tribunal has ruled that the tax point for payment of capital gains tax (CGT) was on or before the date of application for transfer of the property was made at the relevant Lands Office.
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