Kenyan businesses and consumers are staring at a fresh round of tax increases as measures approved in the 2022 Finance Act kick in this week, adding to the pain of inflation that has pushed up the cost of living to a five-year high.
The Kenya Revenue Authority (KRA) has also moved to the Supreme Court to challenge a ruling by the lower courts blocking the implementation of the mandatory one percent gross turnover minimum tax, as it lays the ground to hit the Sh2.1 trillion tax target.
Should the Supreme Court reverse the rulings by the High Court and Court of Appeal, loss-making businesses that do not pay the standard 30 percent corporate income tax will take the biggest hit.
The re-introduction of the fees on mobile-to-bank transactions and vice-versa comes with an additional tax burden of a 20 percent excise duty that will be levied on these transfers, jolting millions of Kenyans who had taken advantage of the waiver to send money cheaply.
Banks and telcos have been displaying the new lower charges relative to those applicable in the pre-Covid period excluding the excise duty that is levied on all financial transactions.
This is in addition to a raft of new tax measures that take effect this month, including a 15 percent capital gains tax on the transfer of property, unquoted shares and rights, a three-fold increase from the old rate of five percent.
Multinational tech firms have also issued notices to customers that they will start applying the standard 16 percent Value Added Tax (VAT) on electronically supplied services such as streaming movies on Netflix or listening to music on Spotify, as the taxman sets sights on the booming digital market in Kenya.
Other online services that will start attracting VAT include e-books and videoconferencing following the introduction of the Value Added Tax (Digital Marketplace Supply) (Amendment) Regulations, 2022.
Consequently, Intuit UK Limited, which provides QuickBooks, recently announced to its customers that it would start levying the 16 percent VAT on all its services.
"As a result, starting on your next bill date on or after 31 January 2023, we will be required to charge 16 percent VAT on all QuickBooks Online subscriptions," said QuickBooks.
Others such as Zoom Video Communications, which owns a virtual meeting platform, started charging the sales tax in September last year.
Property dealers and foreign traders in the derivatives market will be the biggest losers in the second phase of the government’s revenue-raising plan for the Financial Year 2022/23.
The KRA has been given a target of Sh2.14 trillion in the financial year ending June next year, with President William Ruto expecting them to better the collection to between Sh4 trillion and Sh5 trillion.
"We are raising only Sh2.1 trillion in revenue which is 14 percent of GDP. We need to raise 25 percent of our GDP like other middle-income countries. That is between Sh4 trillion and Sh5 trillion," said President Ruto.
Foreign traders gaining from a local-based derivative contract will also start paying a withholding tax of 15 percent.
But there will also be gainers, including companies on the carbon exchange market, foreign buyers of Kenya’s infrastructure bonds issued outside of the country and firms operating shipping business locally.
Capital gains tax has been retained at the rate of five percent for firms certified by the Nairobi International Financial Centre Authority to have an investment of at least Sh5 billion as of January 1, 2023, and which will hold the investments for at least five years before the transfer.
This is aimed at encouraging long-term investment in the country’s financial sector, which will then lead to job creation.
Foreign traders that benefit when local companies hedge for raw materials they procure from the global market, and which are susceptible to price fluctuations, will also start paying a withholding tax of 15 percent.
Also, starting next month, companies certified by the Nairobi International Financial Centre Authority (NIFC) to be engaging in the carbon exchange market, or carbon trading will pay a 15 percent corporate income tax in its first 10 years after which it is expected to revert to the standard rate of 30 percent.
"The enactment of this provision that provides for the reduced rate of tax is aimed at encouraging the growth and participation in the carbon market exchange and subsequently reducing global warming," said audit firm KPMG in an analysis of the Finance Act 2022.