Strategic Insights into Kenya’s 2024/25 Budget and Finance Bill: Unlocking Business Opportunities

The 2024/25 Budget and Finance Bill, 2024 bring forth a slew of pivotal changes aimed at rejuvenating Kenya’s economic landscape. Understanding these changes is crucial for businesses to navigate the fiscal environment effectively and seize emerging opportunities. Here’s a comprehensive breakdown to help you stay ahead of the curve.

 

Overview of Kenya’s 2024/25 Budget Statement

On June 13, 2024, National Treasury Cabinet Secretary Njuguna Ndung’u unveiled Kenya’s FY2024/25 budget, allocating a total expenditure of KShs.4.2 trillion. This budget, designed to foster economic recovery, prioritizes several key sectors:

• Education: Allocated KShs.666.46 billion, a slight decline from the previous year, reflecting ongoing adjustments to enhance efficiency.
• Energy, Infrastructure, and ICT: Received KShs.505.67 billion, an increase aimed at boosting infrastructural development and digital transformation.
• Public Administration and International Relations: Saw a substantial rise to KShs.351.7 billion, enhancing governance and international engagement.
• National Security: Allocated KShs.244.42 billion, underscoring the government’s commitment to safeguarding national interests.
• Health: Received KShs.147.6 billion, with a focus on improving healthcare services across the country.
• Agriculture: Despite being a critical sector, the allocation was reduced to KShs.87.81 billion, signaling a strategic shift towards other growth areas (Deloitte United States) (Nation) (Nation).

 

Analysis of Economic Prospects

Kenya’s economic outlook remains resilient, with the budget targeting a fiscal deficit reduction to 4.4% of GDP from 5.8%. Key initiatives include:

• Revenue Mobilization: Projected revenues are set at KShs.3.44 trillion, up from KShs.3.07 trillion, driven by reforms to broaden the tax base and enhance compliance.
• Public Debt Management: Emphasizing fiscal discipline, the debt-to-GDP ratio is expected to improve, ensuring sustainable economic growth (Nation) (PwC) (Cytonn Report).

 

Key Impacts on Business

The Finance Bill, 2024 introduces several tax measures that will significantly impact businesses:

1. Significant Economic Presence Tax (SEPT):
   • Effective Date: January 1, 2025
   • Details: Replaces the Digital Service Tax (DST) with a SEPT, taxing non-residents at 6% of turnover. This targets digital services such as ride-hailing and food delivery.
   • Implications: Increased tax obligations for non-resident digital service providers, potentially raising service costs (Deloitte United States) (PwC) (Nation).
2. Withholding Tax on Digital Marketplaces:
   • Effective Date: January 1, 2025
   • Details: Introduces a 5% withholding tax for residents and 20% for non-residents on digital marketplace earnings.
   • Implications: Expands the tax net to include more digital economy players, albeit with higher compliance costs (PwC) (Nation)​.
3. VAT Changes:
   • Effective Date: July 1, 2024
   • Details: Increases the VAT registration threshold from KShs.5 million to KShs.8 million and imposes VAT on e-mobility products.
   • Implications: Reduces the compliance burden for small businesses but may increase the cost of green energy products (PwC) (Nation).
4. Excise Duty Adjustments:
   • Effective Date: July 1, 2024
   • Details: Introduces a motor vehicle ownership tax and raises excise duty on betting stakes.  This change is currently under review by Government.
   • Implications: Affects the automotive and gaming industries by increasing ownership and participation costs (PwC) (Nation).

 

Potential Policy Changes and Their Implications

The proposed policy changes aim to foster a more robust economic environment:

1. Tax Policy Reforms:
   • Details: New taxes and adjustments to existing ones to enhance revenue collection and reduce the fiscal deficit.
   • Implications: Encourages compliance and broadens the tax base, supporting sustainable economic growth (Deloitte United States) (Nation).
2. Data Protection Act Amendments:
   • Details: Allows KRA to process personal data for tax purposes.
   • Implications: Enhances tax compliance and enforcement capabilities (Nation) (Cytonn Report).
3. Excluding Weekends and Public Holidays from Tax Activities:
   • Details: Proposes excluding weekends and public holidays from tax-related activities.
   • Implications: Provides relief to taxpayers by extending compliance deadlines, reducing administrative pressure (Nation) (Cytonn Report).

 

Conclusion

The 2024/25 Budget and Finance Bill, 2024 bring transformative changes aimed at driving economic growth and enhancing fiscal stability. Businesses must adapt to these changes to optimize their tax strategies and leverage emerging opportunities.

B M Musau & Co., Advocates LLP is committed to providing expert tax legal advisory services excluding tax accounting services to help businesses navigate these new regulations and ensure compliance. Contact us for a personalized analysis and strategic guidance to maximize your business potential in this evolving fiscal landscape.

For more detailed insights and professional advice, reach out to B M Musau & Co., Advocates LLP. Our team of experts is here to support your business needs and ensure you stay ahead in a dynamic economic environment.