The Kenya Finance Bill, 2024 introduces several pivotal changes to the taxation landscape, aimed at enhancing revenue collection and addressing various economic challenges. Below is a comprehensive analysis of the key tax measures proposed in the bill, their respective effective dates, and their implications.
Income Tax Changes
- Significant Economic Presence Tax (SEPT):
- Effective Date: January 1, 2025
- Details: Replaces the Digital Service Tax (DST) with SEPT. Non-residents earning income from digital services in Kenya will now be taxed at an effective rate of 6% of turnover (30% of deemed taxable profit). This new tax regime is designed to capture a broader scope of digital economic activities, including ride-hailing services, food delivery services, and other digital marketplace services.
- Implications: This change is expected to increase the tax burden on non-resident digital service providers, potentially impacting the cost of digital services in Kenya.
- Withholding Tax on Digital Marketplaces:
- Effective Date: January 1, 2025
- Details: Introduces a 5% withholding tax for residents and 20% for non-residents on income earned through digital platforms. Payments made or facilitated by digital marketplace operators will be deemed as income earned in Kenya.
- Implications: This measure aims to bring more players in the digital economy into the tax net, but may increase compliance costs and affect competitiveness.
- Pension Contributions:
- Effective Date: July 1, 2024
- Details: Increases the tax-deductible limit for pension contributions from KES 20,000 to KES 30,000 per month, encouraging higher retirement savings.
- Implications: This change incentivizes more savings towards retirement, providing a tax benefit to individuals contributing higher amounts to pension funds.
Value Added Tax (VAT) Changes
- VAT Registration Threshold:
- Effective Date: July 1, 2024
- Details: Raises the VAT registration threshold from KES 5 million to KES 8 million.
- Implications: This adjustment aligns the threshold with inflation and reduces the compliance burden for small businesses.
- VAT on E-Mobility Products:
- Effective Date: July 1, 2024
- Details: Repeals the zero-rating of e-mobility products, subjecting electric bicycles, solar and lithium-ion batteries, and electric buses to a 16% VAT.
- Implications: The increased cost of e-mobility products may slow down the adoption of electric vehicles and related technologies.
- Transfer of Business as a Going Concern:
- Effective Date: July 1, 2024
- Details: Exempts the transfer of a business as a going concern from VAT, facilitating smoother business transactions.
- Implications: This exemption simplifies business transfers, potentially encouraging more mergers and acquisitions.
Excise Duty Changes
- Motor Vehicle Ownership Tax:
- Effective Date: July 1, 2024
- Details: Introduces a 2.5% tax on the value of motor vehicles, payable at the time of insurance cover issuance, with a minimum of KES 5,000 and a maximum of KES 100,000.
- Implications: This measure aims to generate additional revenue from vehicle owners, impacting the cost of vehicle ownership.
- Excise Duty on Betting Stakes:
- Effective Date: July 1, 2024
- Details: Increases excise duty on betting stakes from 12.5% to 20%, and imposes a 15% tax on gross gaming revenue, along with a 1% monthly income levy.
- Implications: This is expected to raise the cost of betting and gaming, potentially reducing participation in such activities.
- Infrastructure Bond Tax:
- Effective Date: July 1, 2024
- Details: Introduces a 5% withholding tax on income from infrastructure bonds, previously exempt.
- Implications: This will affect resident retail investors in infrastructure bonds, increasing their tax liability.
Administrative and Compliance Changes
- Data Protection Act Amendments:
- Effective Date: July 1, 2024
- Details: Allows the Kenya Revenue Authority (KRA) to process personal data for tax assessment, enforcement, and collection purposes.
- Implications: This change aims to enhance tax compliance and enforcement capabilities.
- Tax Compliance on Weekends and Public Holidays:
- Effective Date: July 1, 2024
- Details: Proposes excluding weekends and public holidays from tax-related activities, such as submitting tax returns and making payments.
- Implications: Provides relief to taxpayers by extending deadlines and reducing the rush to meet compliance requirements.
Conclusion
The proposed changes in the Finance Bill, 2024, are designed to enhance revenue collection while addressing economic challenges. These changes present both opportunities and challenges for businesses operating in Kenya. B M Musau & Co., Advocates LLP offers expert advisory services to help businesses navigate these changes, optimize their tax strategies, and ensure compliance with the new regulations.
For a detailed analysis and personalized advisory on the impact of the Finance Bill, 2024, please contact B M Musau & Co., Advocates LLP. Our expertise in tax law ensures that your business stays compliant while maximizing tax efficiency.
B M Musau & Co., Advocates LLP
Email: info@bmmusau.com
Website: www.bmmusau.com
I am a Kenyan Advocate and the Managing Partner of B M Musau & Co., Advocates, a position I have held since 1999. My work encompasses regulatory reforms, reduction of administrative burdens, the structure of business entities, joint ventures, acquisitions, banking, foreign investment and other general corporate areas
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