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Kenya: The Finance Act, 2022

8 July 2022
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The Finance Act, which was assented into law on 22 June 2022, has been gazetted today, 8th July 2022. This is in spite of most of the provisions having come into effect on 1 July 2022. The belated gazettement may be a ground to challenge the enforcement of the provisions that took effect on 1 July 2022  and collection of the resultant taxes for the period between 1 to 8 July 2022. 

The Act has introduced amendments to various tax statutes, including the Income Tax Act, VAT Act, Excise Duty Act, Tax Procedures Act and the Miscellaneous Fees and Levies Act. Further, the Act introduced some changes that were not contained in the Finance Bill that was published earlier in April. Some of the new key changes that were not contained in the Bill include:

  1. change of VAT treatment of exported services from exempt to standard rated (16%), save for the exportation of taxable services in respect of business process outsourcing, which is now zero rated;
  2. expansion of entities excluded from interest expense restriction under the EBITDA rule to include, among others, non-deposit taking micro-finance institutions, licensed hire purchase companies, entities in the lending and leasing business, companies undertaking the manufacture of human vaccines, holding companies that are regulated under the Capital Markets Act and manufacturing entities whose cumulative investment in the preceding five years is at least KES 5B;
  3. retention of the rate of 5% on capital gains by firms certified by the Nairobi International Financial Centre Authority with an investment of at least KES 5B as at 1 January 2023 and which hold the investments for at least 5 years before the transfer;
  4. exemption from income tax on certain payments made by companies undertaking the manufacture of human vaccines; and 
  5. reintroduction of tax exemption on dividends paid by special economic zone enterprises, developers and operators.

The constitutionality of the new tax measures introduced after the publication of the Bill and the closure of the public participation window may be challenged on the basis of lack of public participation since the stakeholders did not have an opportunity to provide their views and input on the same. 

Please see here our detailed analysis of the various changes introduced via the Finance Act 2022.