A finance bill is an act of parliament proposed to amend laws relating to various taxes and
duties. The National Treasury tabled the finance bill before parliament on 4th May in Kenya aiming at increasing government revenues in the wake of prevailing economic downturns. The Bill proposes the most far-reaching changes that have been witnessed in tax legislation in the recent past.
There are a couple of drawbacks and benefits for taxpayers if the Bill is passed into law. In summary, the bill proposes the following changes:
The reduction of the Railway Development Levy (RDL) from 2.5% to 1.5% is expected to lower import costs and consequently promote local manufacturing.
35% tax rate for income earners above 500,000 Kenyan Shillings per month. Previously this amount was capped at 30 %.
Taxation of content creation and digital trade assets such as cryptocurrency. The bill proposes that digital content creators now pay a 15% withholding tax on all income made through all platforms. In addition to that will be a 15%Withholding Tax on sales, promotion, marketing, and advertising services offered by Kenyan residents. Previously a 15%of the total amount was charged on advertisements by non-resident persons.
Liquid petroleum gas (LPG) is expected to be reduced from 16% VAT to 8%. With this suggestion, both environmental protection and LPG affordability will be improved.
The Finance Bill 2023 has also proposed to revise the import declaration fee from 3.5 to 2.5%. This proposal will stimulate local manufacturers by reducing the cost of imported inputs.
VAT exemption on diagnostic, laboratory reagents, vaccines for human and veterinary medicine, aircraft, and spacecraft parts to encourage local manufacturers.
The Bill proposes to extend the time allowable for settling a tax dispute outside of court from ninety days to a hundred and twenty days.
Reduced excise duty on telephone and internet data services from 20% to 15%.
The VAT exemption on exported services and digital tax on people in digital i.e. Youtubers are a great advantage to taxpayers.
Finally, suppose the proposal to cut the time it takes to repay an already determined tax refund from two years to six months is approved. In that case, taxpayers can anticipate a faster refund of overpaid taxes.
Petroleum products (petrol, kerosene, aviation fuel, and jet fuel) will be subjected to VAT at a rate of 16%, up from the previous 8%. This idea is anticipated to have a significant impact on the price of petroleum products in the nation and would probably raise prices over the already high existing rates.
The introduction of a 3% housing levy of gross income as a mandatory deduction from employees on top of the NHIF and NSSF monthly deductions. The new contribution will be used by qualified employees to purchase a home under the affordable housing program. After seven years, non-eligible employees will be reimbursed; alternatively, they can decide to transfer the contribution benefit to a qualifying individual or their spouse or children. This proposition is being made at a time when taxpayers need help keeping up with the rising expense of living.
The Bill aims to provide a fundamental change to the High Court’s appeals process; tax dispute procedure. Before filing an appeal at the High Court, taxpayers who are not happy with the tribunal’s ruling must deposit 20% of the tax under dispute with the KRA.
Taxpayers engaging in betting, lottery, and gaming sectors have also been hit significantly in the proposed finance bill with an increase from 7.5% to 15%. Players in this gaming industry are, for instance, required to remit excise taxes within 24 hours from the closure of the day’s transactions.
In addition, the Bill proposes to increase excise duty rates on fees charged by cellular phone providers from 12% to 15%, creating a likelihood of increased mobile money charges from your Mpesa or Airtel Money charges.
The bill also aims to revise the Turnover Tax level by lowering the lower threshold from kes 1 million to kes 500,000 and the upper threshold from kes 50 million to kes 15 million. Additionally, the Bill suggests increasing the turnover tax from 1% to 3% of gross receipts.
The proposed finance bill seeks to amend section 16 of the income tax Act to the effect that no deductions or losses shall be recognized if invoices are not generated from an Electronic Invoice Management System.
There are further drawbacks and benefits in the Bill that will impact taxpayers, but the summary above is what will have the most significant impact on the average taxpayer. The Bill will then proceed to the public input phase, when certain suggestions may be added or removed, before being approved by parliament as an act. The finance bill 2023 shall therefore remain a proposal until it receives presidential assent. Taxpayers should look out for notices inviting them to public participation and have their issues addressed.