The 2023 Finance Bill seeks to amend various laws relating to taxes and duties with the goal of increasing government revenues from taxes collected.
Below is an outline of the key changes proposed in the Bill which is currently under consideration in the National Assembly.
Turnover Tax (TOT)- The Bill proposes to increase the gross sales tax from one to three percent while roping in more micro businesses to the tax net by lowering the entry point to cover businesses with a turnover of Sh500,000 annually from the previous Sh1,000,000.
The upper band has meanwhile moved from Sh50 million to Sh15 million which will see businesses with turnovers above Sh15 million paying taxes on profits (income tax at the rate of 30 percent).
The effect of the tax will mean more micro businesses with now be subject to taxation which the basket of TOT increases from the higher tax rate.
Digital assets tax
The Bill has proposed to introduce a digital assets tax, a three percent levy on the transfer charges applied during the exchange of the assets which cover cryptocurrencies, digital currencies and non-fungible tokens (NFTs).
The levy is applicable to exchanges which host and hold digital assets while the proposal is expected to raise the cost of transacting digital assets which have so far held a low anchoring interest in the digital assets where at least four million Kenyans hold cryptocurrencies according to multiple research findings.
Member clubs are trade associations recognized as businesses - The business income of a member-based club or trade association will now be subjected to tax with the exclusion of joining fees, welfare contributions and subscriptions.
The income is currently not taxed as long as 75 percent of the revenues are generated from members.
Digital content creators
15 percent of payments made to digital content creators will be withheld (withholding tax) with taxpayers making the payments being required to withhold the tax.
The bill also provides a wider definition of digital content creation by describing digital content monetisation as the offer of entertainment, social, literal, artistic or educational material electronically for payment purposes.
35 percent tax band for earners above Sh500,000- The Bill has proposed to net more from high-income earners by introducing a new pay-as-you-earn tax band at a higher 35 percent for persons whose gross monthly income sits above Sh500,000 or Sh6 million annually.
The bill will have the implication of lifting PAYE nettings from the high-income earners while having the opposite effect of bringing down the individual’s net take-home pay.
3% housing levy deductions
The Bill proposes to introduce a new statutory deduction into the National Housing Development Fund at three percent of gross earnings.
The new statutory deduction is expected to further eat into employees’ net take-home pay. The Housing Ministry is expected to create criteria for persons qualifying for affordable housing and who will employ their deductions to fund their home ownership quest.
Persons who fail to fall in the criteria will receive reimbursements at the end of seven years or may choose to pass on the benefit to a person qualifying for the cheap housing plan.
Petroleum products- The Bill has proposed that VAT on petroleum products be applied at 16 percent from the current rate of eight percent.
The proposal is expected to have a profound effect on the cost of petroleum products in the country and would likely push up the prices above the current historical highs.
On the contrary, the supply of LPG would fall in the tax-exempt category removing it from the current vatable status. The proposal will in effect lower the cost of LPG making it more affordable to Kenyans.
VAT registration for imported digital tax services - The bill has proposed to delete the threshold that required non-resident firms to register for VAT if their annual turnover exceeded Sh5 million.
This means that all providers of imported digital services must now register for VAT.
VAT exemptions- diagnostic, laboratory reagents, vaccines for human and veterinary medicine, aircraft and spacecraft parts.
Timely excise duty payments- The bill seeks to empower KRA to obligate certain firms in certain industries to pay excise instantaneously.
Players in the gaming industry are for instance required to remit excise taxes within 24 hours.
The proposal is expected to increase the cost of compliance for business accounting for excise duty including the setting up of systems to enable real-time payments.
On the flip side, KRA is set to see improved liquidity from the instant disbursement of taxes levied.
Cosmetics- Human hair, wigs, false beards, eyebrows, eyelashes and artificial nails will begin attracting excise duty at the rate of five percent.
Other new excisable goods added include; imported fish at Sh100,000 per metric ton or 20 percent, powdered juice (20 percent) and imported cement (10 percent of the value or Sh1.50 per kilogram)
Increased excise duty rates- mobile money transfer services 12 percent to 15 percent creating a likelihood of increased mobile-money charges by telco operators, excise duty on gaming, betting, price competitions and lotteries move from 7.5 percent to a blanket 20 percent with the aim of raising tax nettings from the gaming industry.
Any amount charged in the disbursement of digital loans- Any amount charged in the process of a loan issuance by a digital lender will be the subject of excise duty which is levied at 20 percent.
Tax Appeals Tribunal
Taxpayers will be required to deposit 20% of the tax in dispute at the KRA or equivalent security before disputing a decision of the Tax Appeals Tribunal at the High Court.
The move is set to disincentive taxpayers wishing to challenge decisions made by the tribunal as the deposit requirement may be untenable to most taxpayers.
Tax Procedures Act
The KRA will no longer grant relief because of doubt or difficulty in the recovery of tax on the part of the KRA.
The proposal if passed is expected to lead to an even more aggressive tax authority implying more running battles between the taxman and taxpayers in arrears.
Miscellaneous Fees & Levies Act
Import declaration fee- The bill has proposed to revise the import declaration fee from 3.5 to 2.5 percent.
The move is deemed as a stimulator to local manufacturing by reducing the cost of inputs imported to the country.
Railway Development Levy - The bill has also proposed to lower the RDL from 3.5 to 2.5 percent in a move seen as an additional cushion to local manufacturing.