In an effort to enhance its tax regimes and create a more robust economic landscape, the government is advancing significant updates through the Finance Bill 2024, which seeks to revise various existing acts and policies.
With most alterations slated to take effect from July 1, 2024, individuals and businesses are advised to evaluate these changes with a tax professional to understand their implications.
Modification in business taxes and digital engagements
Businesses dealing in digital services should be aware that digital content monetization is set to expand, now encompassing a broader spectrum of creative and shared materials.
This amendment strives to encompass a gamut of digital services not previously specified in the Income Tax Act.
Clarification on donations is put forward, defining them as both monetary and non-monetary benefits conferred without consideration. These will be tax-deductible, pending realignment with the Kenya Revenue Authority’s (KRA) guidelines.
Defining entities and partnerships
The definition of a public entity is introduced, which includes governmental bodies at both national and county levels. This allows for a clear distinction of the entities involved in tax-related transactions.
Restructuring the notion of related party is crucial to achieve consistency within the Income Tax Act. A unified definition will now address management, control, or capital involvement, and will recognize relationships by blood, marriage, or adoption.
Royalties and withholding tax
Royalties have an extended definition to now cover software-related transactions. This includes licensing, maintenance, and distribution fees, reflective of the growing importance of digital products in the economy.
The implementation of a withholding tax on goods supplied to public entities is intended, placing rates at 3% for residents and 5% for non-residents.
Also, the earlier de minimis threshold for certain professional fees is removed, suggesting that withholding tax will apply to all amounts paid, irrespective of size.
Exemptions and incentives under scrutiny
A vital change targets the withdrawal of multiple income tax exemptions.
This affects a variety of entities, from amateur sporting associations to registered trusts and housing programs. Furthermore, an exemption repeal is proposed for interest income from certain infrastructure bonds and green bonds, with a 5% withholding tax introduced.
However, in special economic zones, gains on property transfers carried out by authorized developers remain exempt, presenting an opportunity for enhanced investment.
Introducing motor vehicle tax
A notable proposition is the motor vehicle tax, aiming to levy a rate of 2.5% on insured values, emphasizing a vehicle’s engine capacity and year of manufacture.
By doing so, it generates additional income for national coffers while potentially encouraging the uptake of more environmentally friendly vehicles.
Public participation and legislative process
The public’s input is considered essential, with the government opening these proposals for discussion before the bill is passed into law.
The bill has to undergo the Parliament scrutiny, ensuring that the legislative body thoroughly examines and debates on its provisions before it becomes law.
Businesses are encouraged to assess the impact of the Finance Bill 2024 on their operations and to prepare for the changes ahead.
With the Kenya Revenue Authority (KRA) at the helm of implementation, compliance will be paramount.
