Taxation of branches/permanent establishments – The proposed reduction of the non-resident corporate tax rate from 37.5% to 30% from January 2024 is a welcome move for companies operating in Kenya. This will make Kenya a more attractive destination for foreign investment, as it will lower the tax burden for multinational companies operating in the country.
Taxation of ESOP benefits for employees of start-ups – Deferring the taxation of ESOP benefits for employees of start-ups will encourage start-ups to attract and retain talent, as employees will have more time to realize the benefits of their options.
Exported services – The proposal to reintroduce the exemption from VAT of exported services is a positive development for companies that provide services to customers outside Kenya. This will help to boost exports and create jobs in the service sector.
Reduction in Excise Duty – The excise duty on telephone and data services is set to decrease from 20 percent to 15 percent, providing taxpayers with some relief. Moreover, the excise duty on money transfer services by banks will also decrease from 20 percent to 15 percent, which is expected to benefit taxpayers.
Faster Tax Refunds – The time taken to refund an already ascertained tax refund is proposed to be reduced from two years to six months, which will provide taxpayers with a faster refund of overpaid taxes. Additionally, there will be a specific time limit of 120 days for the KRA to finalize an audit for purposes of ascertaining the refund due to a taxpayer. Previously, there was no time limit for the KRA audit.
Exemption of LPG from VAT – The proposal to exempt LPG used for cooking from 8.0 percent VAT, 3.5 percent import declaration fee, and 2.0 percent railway development levy, if implemented, will lead to a significant decrease in the price of clean fuel for households that use LPG.
Changes in personal income tax rates – The proposed introduction of a higher personal income tax rate of 35% on the income of individuals which is above KES 6,000,000 per year (KES 500,000 per month) will increase the tax burden for high-income earners in Kenya. This may discourage investment and entrepreneurship, as it will reduce the returns on investment for high earners.
Expansion of scope of withholding tax and change of withholding tax due date – The proposal to subject to withholding tax payments made in relation to sales, promotion, marketing, and advertising services at the rate of 5% of the gross amount the aggregate value of which is at least KES 24,000 in a month, and payments made in relation to digital content monetization at the rate of 15%, will increase the compliance burden for companies that engage in these activities.
Introduction of tax on digital assets – The proposal to introduce a new Digital Asset Tax at the rate of 3% on the income derived from the transfer or exchange of digital assets will increase the tax burden for companies that deal in digital assets. This may discourage investment in the sector.
VAT on petroleum will increase from 8.0 percent to 16 percent – The government has announced an increase in Value Added Tax (VAT) on petroleum products, which will result in an increase in the price of fuel at the pump. This move is aimed at increasing revenue for the government, but it may also lead to a rise in the cost of living for consumers.
Mandatory contribution to the National Housing Development Fund will affect ordinary taxpayers – The government has introduced a mandatory contribution to the National Housing Development Fund, which will affect not only employers but also employees who earn a minimum monthly income of KES 5,000. The contribution will be 1.5% of the employee’s basic salary and will be deducted from their salary every month. This is intended to finance affordable housing projects in Kenya.
Taxpayers who wish to appeal against a decision of the Tax Appeals Tribunal will be required to deposit 20 percent of the amount in dispute – This is aimed at reducing the number of frivolous appeals and to ensure that only serious and meritorious appeals are brought before the tribunal. However, this may also pose a financial burden for taxpayers who wish to exercise their right to appeal.
Other proposed changes:
Changes on EBITDA-based restriction of interest expense – The proposal to restrict the applicability of EBITDA-based interest restriction rules to interest payable on loans only from non-resident lenders will encourage borrowing from local lenders. However, the proposal to exclude companies involved in manufacturing from the exemption from the restriction of interest expenses under the EBITDA rule may increase the cost of borrowing for manufacturers.
Investment Allowance Deductions – The proposal to introduce investment deduction claims on capital expenditure incurred on the construction of docks at the rate of 10% per annum, and to reintroduce investment deduction claim on capital expenditure incurred on industrial buildings at the rate of 10% per annum, will encourage investment in these sectors.
Deduction of expenditure whose invoice is not generated through an electronic tax invoice system – This proposal will encourage the use of electronic tax invoice systems and increase tax compliance.
Restriction of accelerated capital allowance – The proposal to limit the applicability of the 100% and 150% investment deduction allowance to hotel buildings, buildings used for manufacture and machinery used for manufacture may discourage investment in other sectors.
Changes of capital gains tax – The proposal to levy capital gains tax on gains derived from the alienation of shares or comparable interests in a partnership or trust if during the year preceding the alienation, the shares or comparable interests derived more than twenty per cent of their value directly or indirectly from immovable property situated in Kenya will increase the tax burden for investors in these sectors.
Transfer of a business as a going concern – The proposal to make the transfer of a business as a going concern exempt from VAT