The Finance Bill 2024 was tabled in parliament on the 13^th May 2024 and opened up the window for public participation as provided for in the constitution. The Bills contains various revenue raising and collection of taxes measures. It further proposes to amend other legislations relating to collection of fees and levies. Discussed herein are some of the proposed changes.

Income Tax Act

Digital Market Place

• Definition of Digital market place has been expanded to include ride hailing services, food delivery services, freelance services, professional services, rental services, task based services and any other service that is not exempt from tax under this Act. This broad definition now brings to tax various services provided online or through an electronic platform and it will cover income earned by both resident and non residents persons which is deemed to have been accrued or derived from a digital market place. The rate of tax will be at 5% and 20% for resident and non-resident respectively

Deferment of tax losses

• Foreign exchange losses disallowed by company where interest exceed thirty per cent of EBITDA will now be carried forward for a period of three years and not five years as is provided for currently;

Supplies of goods to a public entity subject to withholding tax

• The Bill introduces a new section bringing to tax income received by a person from a public entity for the supply of goods. Such income will now fall under the ambit of withholding tax at the rate of 5%.

Per Diem

• The first KES two thousand received by an employee while on official duty (per diem) was exempt from tax. The Bill seeks to amend this section to exempt such amounts not exceeding five per cent of the monthly gross earning of an employee provided that the employer has a policy on payment and accounting for subsistence , travelling or other allowances;

Value of non Cash benefits

• Currently the value of all benefits, advantages or facilities of whatsoever nature are taxable on the employee with an exception of amount not exceeding KES 36,000 per annum which are not taxable. The Bill seeks to increase this amount to KES 48,000 per annum (KES 4,000 PM);

Meals provided to staff

• Meals provided to staff in a canteen or cafeteria operated by the employer or provided by a third party and whose value does not exceed KES 4,000 (KES 48,000 per annum) in a month are currently exempted from tax. The Bill seeks to increase this amount to KES 60,000 per annum (KES 5,000 PM);

Subsistence allowance/reimbursement paid to public officers

• Amounts given to public officers as reimbursement on expenditure incurred for purpose of performing official duties will now be exempt from taxation;

Gratuity or similar payment made to pension scheme

• The first KES 20,000 per month paid by the employer as gratuity or similar payment made to a registered pension scheme is exempt from taxation. In order to encourage saving, the Bill seeks to increase this amount to KES 360,000 per annum (KES 30,000PM);

 Contribution to registered pension/provident/ individual retirement fund

• Similarly the allowable limit of the contributions made by employees to registered pension or provident fund has also been increased to KES 360,000 provided that the contribution for both employee and employer does not exceed KES 30,000 per month;

Digital service tax

• Section 12E of the income Tax Act, which was the charging section with regards to Digital Service Tax has been repealed. In its place a tax known as significant economic presence tax shall be payable by non-residents whose income from provision of services is derived from Kenya through a digital market place. The rate of tax will be at 20% of the gross turn-over and will be payable on or before the twentieth day of the month following the end of the month in which the service was offered. This tax shall not be applicable to non-resident who provide services through a permanent establishment;

    Minimum top up Tax

• The Bill has introduced a tax known as minimum top up tax payable by a covered person where his combined effective tax rate in respect of the year of income under consideration is below 15%.
• The Bill defines a covered person to mean a resident person or person with a permanent establishment in Kenya who is a member of a multinational group and the group has a consolidated annual turnover of seven hundred and fifty million euros or more in the consolidated financial statement of the ultimate parent entity in at least two of the four years of income immediately preceding the tested year of income.

   Motor Vehicle Tax

• A new tax known as motor vehicle tax has been introduced through section 12 H of the Bill. The rate of tax will be at the rate of 5% of the value of motor vehicle provided that the amount of tax payable shall not be less than KES 5,000 and more than KES 100,000 per annum. Insurance companies will be responsible with deducting and remitting this amount within five working days after issuing of the insurance cover. Non-compliance will attract a penalty equivalent to 50% of uncollected tax and the actual amount of tax uncollected. Ambulances and vehicles owned by the national, county government, national police service, Natioanl Intelligence Service will be exempted from paying Motor vehicle Tax.

        Diminution on loose tools

• In ascertaining the taxable income of a person, expenditure representing diminution in value of loose tools will be an allowable deduction at the rate of 100% of the cost of the loose tool.

         Allowable deduction in arriving at the taxable income of an individual

• For purposes of computing the taxable income of an individual, expenditure in relation to contribution to the Affordable Housing Levy, Social Hospital Insurance Fund and post-retirement medical fund will be allowable deductions. This will lead marginal saving on the part of the employee. Employers will also enjoy a deduction on the AHL contributed on behalf of employees.
• Further Section 30A providing for Affordable Housing Relief has been repealed, this is to align the Act with the new provisions introduced under Section 15.

Rebates to Residential Housing Developers

• The Income Tax Act currently allows developers to enjoy a further rebate of 15% of the expenses incurred in developing 100 residential housing units annually. This rebate was to encourage developers to construct residential units. The bill seeks to repeal this provision.

Mortgage Relief

• The allowable interest limit in relations to loan obtained from the specified financial institutions for the purchase or improvement of premises occupied by him is proposed to be increased from KES 300,000 per annum (25,000PM) to KES 360,000 per annum (30,000PM).

Advance Pricing Agreement

• The Bill seeks to introduce Advance Pricing Agreement (s) where companies and the revenue authority will be at liberty to agree in advance the pricing of intercompany transaction before such transaction occur. This will help in solving transfer-pricing disputes between taxpayers and the revenue authority. Currently the Income Tax Act does not have such a provision. Any agreement entered between the parties will be valid for periods not exceeding five consecutive years.

Change of year-end

• Section 27 of the Income Tax Act provides for application of change of accounting year-end where it does not coincide with year of Income. Upon application by the taxpayer for change of year-end, the Commissioner is required to communicate his decision within six months. The Bill seeks to introduce a new section deeming the application allowed where the Commissioner fails to communicate within the allowed timelines.

Amendment to the First schedule (Exempt Incomes)

• The Bill seeks to amend the first schedule of the income Tax Act to bring to tax the following incomes:

1. Income from investment of an amateur sporting club;
2. Income of registered trust scheme;
3. Income of the National Housing development fund;
4. Income earned by an individual registered under the Ajira Digital Programme;
5. Interest income from infrastructure bonds, notes and similar securities will be subject to tax at the rate of 5%

If these amendments are retained then the above incomes will henceforth be subjected to tax:

Investment deduction removal for bulk storage facility for SGR

• Currently, companies who construct bulk storage facility for the SGR with a capacity of 100,000 metric tonne enjoy an investment deduction 1t 150% of the capital expenditure incurred. The bill seeks to repeal this provision

Capital gain Tax Exemption

• The eighth schedule of the Income Tax is proposed to be amended to exempt the transfer of asset by an individual to a company where the individual who holds 100% shareholding in the company.

VAT Act Proposals

Tax Invoice Definition

• The definition of a tax invoice has been expounded to include an electronic tax invoice issued through a system established by the commissioner. The current system in use is eTIMs;

Time of supply

• Section 12 is proposed to be amended to include further requirements with regards to exported goods. With the new provision, goods will be deemed to have been exported when the registered person is in possession of the required export confirmation documents;

Refund of VAT refunds

• Section 17 (5) is proposed to be amended to delete paragraph C, D and E. The implication of this is that:

1. Excess VAT refunds as a result of withholding VAT will no longer be refundable; and
2. Claim of refunds will henceforth be lodged within six months as provided for by the Tax Procedure’s Act.

Threshold for VAT Registration

• Section 34 has been amended to raise the registration threshold for VAT from KES 5,000,000 to KES 8,000,000. This will exempt small businesses below this threshold from registering for VAT.

First schedule (Exempt services and goods)

• The Bill seeks to amend the first schedule to remove/add the following goods and services to the exempt list.

The following goods will henceforth be exempt from VAT:

Second schedule (Zero rated goods and services)

• The Bill seeks to amend the second schedule to remove/add the following goods and services to the zero rated list.

Excise Tax

The Bill seeks to introduce the following changes with regards to Excise Duty

• Services offered through a digital platform by a nonresidents – Going forward such services will attract excise tax;
• Commissioner to approve or reject license application within 14 days. Currently there is no timelines provided;
• Payment of excise duty on alcoholic beverages to be within 5 workings days. Currently the payment should be made within 24 hours; and
• Advertisement on social media or internet relating to betting, gaming and a lottery to attract excise duty at 15%. Currently such advertisement does not attract duty.

The Bill further propose to changes the excise duty rate of goods and services as per below:

Tax Procedures Act Proposal

The following are the changes to the Tax Procedures Act as proposed by the Bill. We have summarized below the changes.

• Section 51 is proposed to amended to increase the period within which the commissioner is to issue an objection decision from the current 60 days to 90 days;
• Where the date for filing a return/notice or making a payment falls on a Saturday, Sunday of Public Holiday, the due date will be the previous working day unless such documents are lodged electronically;
• The Bill seeks to introduce section 37 E which refrains the commissioner from assessing or recovering or recovering unpaid taxes under certain circumstances, such as impossibility of recovery or hardship provided the same is approved by the Cabinet Secretary;
• A new requirement of PIN registration has been introduced for employees who are working remotely outside Kenya for an employer who is in Kenya;

Miscellaneous Fees and Levy Act

The Bill seeks to introduce the following changes to the Miscellaneous and Levy Act, 2016:

1. Import declaration fee – The Bill proposes to increase the import declaration fees from 2.5% of the custom value to 3%;
2. Import Declaration Fee (IDF) and Railway Development Levy (RDL) – The Bill seeks to exempt goods, supplies, machinery and equipment meant for use by the National Intelligence Service from IDF and RDL;
3. Eco Levy – A new levy known as Eco levy is proposed to be introduced on goods such as telephone sets, transmission apparatus for radio-broadcasting or television, monitors and projectors, Diapers of Chapter 96, Rubber tyres of Chapter 40 among other goods. The rates of the levy will be as provided for in the Fourth Schedule of the Miscellaneous Fees and Levy Act, 2016;
4. Export and Investment Promotion Levy – The Bill seeks to introduce Export and Investment Levy on goods such as Vodka, billets, Cooking stoves for liquid fuel, Electric motorcycles, metal furniture used in offices, mattress supports among other classes of goods. The rate of tax will range from 3% to 10% of the custom value

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This publication has been prepared for guidance purposes only, professional opinion should be sort before making any decisions.