Recently, the current administration announced several disparate measures to be undertaken to increase revenue collection.
An example is President William Ruto’s speech on New Year’s Eve. He indicated that Kenya Revenue Authority (KRA) would increase revenue collection to Sh3 trillion by next year and double tax collections in the next five years.
Tax revenue collection has risen in the recent past. The KRA hit a new record by collecting Sh2.031 trillion in the fiscal year 2021/22.
The taxman is currently lagging in its revenue targets for the year 2022/23, according to the Statement of Actual Revenues and Net Exchequer Issues published on December 16, 2022. The KRA has an enormous task ahead.
The government will take advantage of several tax measures in the Finance Act 2022 that commenced on January 1.
First is the taxation of gains from financial derivatives. Such a gain will be subject to tax in Kenya at the rate of 15 percent. The Treasury Cabinet secretary is expected to issue regulations on taxing financial derivatives this month.
The regulations should at least specify the nature of financial derivatives subject to tax, the date when they will come into force, the due date for remitting the tax and how to remit the tax.
Kenya should consider if the tax will be counter-productive given that it targets non-residents who often push back local tax to residents by insisting to be paid net of tax.
The Finance Act 2022 also increased the rate of capital gains tax (CGT) from five to 15 percent effective January 1. The tax applies to the transfer of land and shares in companies that are not listed on the Nairobi Securities Exchange.
The subsequent increase in CGT should be balanced with indexation to reduce the tax impact and maintain Kenya as a preferred investment destination in East Africa.
It is interesting to see how the government will increase revenue collection as anticipated by the President.
We expect to see some newsworthy tax measures introduced through laws such as the anticipated Finance Act in 2023. The Treasury is currently considering comments by stakeholders as they draft Finance Bill 2023.
The public should look out for this Bill and thoroughly engage the Treasury and Parliament in producing tax measures for 2023/24.
The government is also likely to look at new frontiers for tax revenue, such as the digital economy.
If the political pronouncements are anything to go by, Kenya’s tax environment in 2023 is set for a radical shift. Taxpayers should tighten their belts and expect some turbulence on the way. Bon, voyage!
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