1.0. Personal Income Tax
The proposed Bill seeks to introduce significant changes to Personal Income Tax. One notable change is the creation of a new tax bracket with a higher tax rate of 35% for individuals whose monthly income exceeds KES 800,000. For those earning less than KES 500,000, the current tax rate of 30% will continue to apply. Additionally, individuals earning between KES 500,000 and KES 800,000 per month will be subject to a tax rate of 32%, while those earning over KES 800,000 per month will be taxed at 35% on the portion of their income that exceeds this threshold.
Furthermore, the Bill aims to introduce a mandatory contribution for employees and employers to the National Housing Development Fund (NHDF). Under this proposal, employees will be required to contribute 1.5% of their monthly basic salary, and employers will match this contribution. Importantly, there will be no capping on the total combined contributions from both employees and employers.
The Bill also introduces changes to the taxation of benefits derived from shares issued to employees of eligible start-ups. These changes aim to defer the taxation of such benefits until specific events occur, such as the sale or disposal of the shares, the termination of the employee’s employment, or after five years from the year in which the shares were awarded. To determine the market value of the shares, the first event mentioned above will be considered. If the market value cannot be ascertained, the Commissioner will determine it based on the value derived from the last issued Financial Statements.
The proposed Bill suggests amendments to the Value Added Tax (VAT) Act to make the conditions for claiming input tax under Section 17(2) more inclusive and applicable to all eligible situations. Additionally, the Bill introduces a new subsection (subsection 9) within Section 17 of the VAT Act to address the taxability of compensation for the loss of taxable supplies. If someone receives compensation for the loss of taxable supplies, they must declare and remit the corresponding value-added tax amount to the Commissioner, depending on whether the compensation includes value-added tax or not.
The Bill also aims to modify Section 43(1) of the VAT Act to eliminate the requirement to maintain VAT records within Kenya. Taxpayers will have the flexibility to store their VAT records in any location, whether in electronic format or otherwise, without being constrained to keep them within Kenya’s borders. However, they will still be required to retain these records for the specified period of five years.
Moreover, the Bill seeks to modify Section 8(2) of the VAT Act, making the place of supply rules for services provided by non-resident persons applicable to both registered and unregistered persons in Kenya.
3.0. Corporate Tax
The proposed Bill introduces several changes to corporate tax in Kenya. One notable change is the disallowance of expenditure or loss deduction if invoices for transactions are not generated through an electronic tax invoice management system (e-TIMS), except for cases exempted in line with the Tax Procedures Act, 2015 (TPA).
The Bill also suggests reducing the Monthly Rental Income (MRI) tax rate from ten percent to seven-point five percent.
Moreover, the Bill proposes an increase in advance tax rates for specific vehicles. For vans, pick-ups, trucks, prime movers, trailers, and lorries, the current rates would be raised from KES 1,500 per tonne of load capacity or KES 2,400 per year (whichever is higher) to KES 3,000 per tonne of load capacity or KES 5,000 per year (whichever is higher). For saloons, station wagons, mini-buses, and coaches, the current rates would be increased from KES 60 per passenger capacity per month or KES 2,400 per year (whichever is higher) to KES 100 per passenger capacity per month or KES 5,000 per year (whichever is higher).
4.0. Withholding Tax (WHT)
The proposed Bill introduces a withholding tax rate of 5% on payments made to resident persons or permanent establishments for sales promotions, marketing, and advertising services. This new rate aims to apply to residents or entities with a permanent establishment in Kenya, providing these services. Currently, non-residents providing similar services are subjected to a higher withholding tax rate of 20%.
The Bill also suggests remitting withholding tax to the Commissioner within twenty-four hours from the time the tax is deducted on qualifying payments, which is a change from the current requirement of remitting WHT on or before the twentieth day of the following month.
Additionally, the Bill proposes making it mandatory for rental agents handling rental income collection on behalf of property owners to remit withholding tax to the Commissioner within twenty-four hours if they have been designated as withholding tax agents.
Furthermore, the Bill proposes reducing the withholding tax rate on rent to 7.5%, down from the current rate of 10%.
5.0. Tax Matters
The proposed Bill introduces several changes related to tax matters in Kenya. One notable change is the requirement for taxpayers who are dissatisfied with the Tax Appeals Tribunal’s decision to deposit 20% of the disputed tax amount or provide security equivalent to that amount to the Commissioner before initiating an appeal at the High Court.
Moreover, the Bill proposes a Tax Amnesty for interest, penalties, or fines on unpaid tax for eligible taxpayers. The amnesty would apply to unpaid taxes due before 31 December 2022, and taxpayers would need to apply and settle the outstanding principal tax before 30 June 2024 to be eligible.
The Bill also seeks to modify the provisions related to the use of taxpayers’ properties as security for outstanding taxes. The Commissioner will be required to notify the taxpayer within 14 days of registering the security on their property.
Additionally, the Bill proposes the abolition of waivers of penalties and interest and the abandonment of taxes, which grant the Commissioner the authority to abandon taxes in certain cases.
The Bill introduces a new requirement for taxpayers to use an electronic tax register for issuing electronic tax invoices. Taxpayers will be required to issue electronic tax invoices using the electronic system established by the Commissioner.
Furthermore, the Bill suggests allowing taxpayers to apply for offsetting their overpaid tax against outstanding tax debts and sets time frames for the Commissioner to process refund or offset applications. The proposed amendment also allows for concurrent civil and criminal proceedings in tax disputes.