According to the government, the Finance Bill 2024 aims to boost Kenya’s revenue by Ksh302 billion, bringing the total projected revenue for the year to Ksh3.3432 trillion.
Here’s a breakdown of the key amendments and their implications, as read by Molo MP Kimani Kuria – who chairs the National Assembly’s Finance Committee, and summarized by Moneyspace:
1) Revised commencement dates for early revenue collection
To expedite revenue collection, the Committee suggests changing the start date for certain clauses from 1 September 2024 to 1 August 2024.
This adjustment will help the government collect revenues sooner.
2) Tax on creative works
The Committee clarifies that only income-generating creative works will be taxed. This means if your creative work, such as art or writing, generates revenue for you, it will be subject to tax. If it doesn’t generate income, it won’t be taxed.
This provides clarity on which creative works are taxable.
3) Software distribution and royalty definition
In alignment with international best practices, the Committee recommends removing the phrase “and include distribution of the software” from subclause (b).
This means that simply distributing software will not be considered an activity that generates royalties.
4) Inclusion of grants in donation definition
The Committee proposes expanding the definition of donations to include grants. Since grants are not necessarily taxable, this change ensures that grants are included without prejudice.
This cleans up the definition and aligns it with current practices.
5) Recovery period for foreign exchange losses
To support businesses, the Committee recommends retaining the period for recovering foreign exchange losses at five years instead of the proposed three years.
This measure aims to cushion businesses against potential financial losses.
6) Taxation of public officers’ employment benefits
An amendment excluding public officers from taxation on employment benefits, specifically reimbursements for employer-acquired assets, has been deleted.
This change prevents discrimination against private sector employees and mitigates potential abuse.
7) Digital services tax adjustments
Digital service providers, who generally have higher profit margins due to lower expenses, will see a reduction in the deemed income rate from 20% to 10% of gross turnover.
This adjustment ensures these providers contribute fairly to the tax system.
8) Introduction of a top-up tax
The Committee supports the introduction of a top-up taxA top-up tax is a mechanism designed to ensure that large multinational companies (MNEs) pay a minimum level of tax on their profits in each country t... ..., a global tax mechanism adopted by over 60 countries.
Implementing this tax in Kenya ensures multinational companies pay their fair share and prevents revenue loss from underpayment.
9) Motor vehicle tax proposal
The proposed motor vehicle tax in Clause 9(12H) has been contentious. The Committee notes:
- Section 3(2) of the Income Tax Act defines taxable income, but the proposed motor vehicle tax is levied on an asset, not income.
- Capping the levy at Ksh100,000 makes the tax discriminatory and non-progressive.
- The tax could negatively affect insurance-taking behavior and the insurance sector.
- Commercial vehicles are already subject to advance tax, so this proposal would result in double taxation.
Due to these concerns, the Committee recommends canceling the proposed motor vehicle tax.
10) Encouraging post-retirement medical savings
The Bill initially proposed limiting the deductibility of employee contributions to a post-retirement medical fund to Ksh10,000.
The Committee recommends increasing this limit to Ksh15,000 to encourage a saving culture for post-retirement medical expenses.
11) Advance pricing agreement (APA)
The Committee supports the proposal for an advance pricing agreement to enhance revenue determination for multinational groups and related entities.
To ensure smooth implementation, the Committee recommends enacting regulations that address the right of appeal if the KRA cancels APAs.
12) Taxation of amateur sporting associations
While the Bill proposes making amateur sporting associations taxable, the Committee recommends certain exemptions to support investment and growth in this sector.
Other amendments
There are also other amendments to the finance bill, which are likely to make this it to be passed by the parliament. These changes include:
13) Removal of VAT on bread
The Finance Bill will no longer include a proposed 16% VATValue Added Tax (VAT) in Kenya is a consumption tax levied on the sale of goods and services. As of , the standard VAT rate is set at 16%. This tax is... ... on bread. This measure was removed due to widespread criticism regarding its potential to increase the cost of living.
14) Data Privacy Act amendment dropped
The proposal to amend the Data Privacy Act to allow the Kenya Revenue Authority (KRA) access to taxpayers’ financial transactions has been dropped.
This move addresses privacy concerns raised by various stakeholders.
15) Removal of excise duties on vegetable oil and VAT on transportation of sugar
The excise duties on vegetable oil and VAT on transportation of sugar have been scrapped. This decision aims to prevent inflationary pressures on essential commodities.
16) Elimination of the Eco Levy
The Eco Levy on locally manufactured products has been removed to support domestic industries and avoid imposing additional costs.
17) Exemption from the eTims system for small businesses
Small businesses and farmers with turnovers below Ksh1 million are exempted from the controversial eTims system requirement. This adjustment eases compliance requirements and supports growth in the informal sector.
18) Introduction of excise duties on imported agricultural products
New excise duties on imported eggs, onions, and potatoes have been introduced to protect local farmers from unfair competition and bolster Kenya’s food security initiatives.
19) Maintenance of current rates for mobile money transfers
The amended Finance Bill will maintain current rates for mobile money transfers, alleviating concerns about increased transaction costs for mobile banking users.
20) Elimination of VAT on financial services and foreign exchange transactions
VAT on financial services and foreign exchange transactions has been eliminated to promote financial inclusivity and reduce transactional barriers.
21) Increased threshold for VAT registration
The threshold for VAT registration has been raised from Ksh5 million to Ksh8 million. This adjustment aims to reduce administrative burdens on smaller businesses, allowing them to focus on growth and sustainability.
22) Removal of tax on sanitary pads and towels
The proposal to introduce a tax on sanitary pads and towels has been dropped from the amended Finance Bill of 2024. This decision supports women’s health and hygiene by keeping these essential items affordable.