On Thursday, 4 May 2023, Kenyan government led by president William Ruto through the National Treasury, tabled a bill (Finance Bill, 2023) to the National Assembly for consideration and enactment into the Finance Act with the aim of increasing taxes.
The proposed move is part of the administration’s plan to generate a whopping Sh3.6 trillion for the upcoming financial year, 2023-24. In the recent past, the government has struggled to meet its expenditure requirements and in some of the proposals the government has sought to increase taxes to bridge its fiscal deficit.
The government has announced a series of proposed amendments to several tax statutes, including the Income Tax Act, the Value Added Tax Act, the Tax Procedures Act, and the Miscellaneous Fees and Levies Act. These proposals aim to bring about changes in the existing tax system.
The proposals also include some of the key sectors that the government aims to develop in order to stimulate economic growth and alleviate the burden of living costs.
If passed, the bill will have far-reaching implications for citizens and businesses alike, and is likely to be a major point of contention in the political sphere.
Some of the key proposed Finance Bill 2023 include;
1. 3% contribution by employees and employers respectively to finance affordable housing projects
2. The proposed Bill aims to eliminate the 8% Value Added Tax (VAT) that is currently applicable to Liquefied Petroleum Gas (LPG) and instead make it exempt from VAT altogether. Moreover, the Bill proposes that the importation of LPG should also be exempted from import declaration fees and railway development levy.
3. A proposal has been put forward to implement a new personal income tax rate of 35% for individuals earning above KES 6,000,000 annually (equivalent to KES 500,000 per month).
4. The proposed bill suggests imposing a capital gains tax on profits obtained from the sale of shares or similar interests in a partnership or trust. This tax would apply if, during the year before the sale, more than twenty percent of the value of those shares or interests was directly or indirectly derived from immovable property located in Kenya.
5. The proposed bill suggests that taxpayers must deposit with the KRA 20% of the disputed tax or furnish a security equivalent to 20% of the disputed tax before lodging an appeal against a decision made by the Tax Appeals Tribunal at the High Court. In the event that the Court rules in favor of the taxpayer, the KRA will be obligated to reimburse the deposited amount or release the security within 30 days of the appeal’s resolution.
6. The Proposed Finance Bill 2023 aims to levy Value Added Tax (VAT) on insurance payouts for assets on which input VAT was previously claimed.
7. The proposed bill seeks to abolish section 10 of the Excise Duty Act, which grants the Kenya Revenue Authority (KRA), subject to Cabinet Secretary approval, the power to modify the specific rate of excise duty through a notice published in the Gazette annually, to account for inflation.
8. A reduction of the non-resident corporate tax rate from 37.5% to 30% starting January 2024 is being proposed. Additionally, the Bill suggests that branch/permanent establishment’s repatriated profits should be taxed. Repatriated profit will be calculated by comparing the branch’s annual profits with the increase in the value of its assets.
9. The proposed bill aims to provide amnesty on fines, penalties, and interest related to tax debts for individuals who pay their principal taxes on or before June 30, 2023, do not accumulate any additional tax debts, and sign a commitment letter agreeing to settle all outstanding tax obligations.
10. A new proposal for a Digital Asset Tax has been put forth, which suggests a 3% tax rate on income earned through the transfer or exchange of digital assets. The definition of digital assets encompasses anything that holds value but is intangible, including cryptocurrencies, token codes, numbers generated via cryptographic or other means, and any other item that provides a digital representation of value that can be transferred, stored or exchanged electronically. Additionally, this definition includes non-fungible tokens and any other tokens that may be known by other names.
11. Introduction of an export and investment promotion levy on specified imports.
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