The recent ruling by the Court of Appeal declaring Kenya's Finance Act 2023 unconstitutional has caused significant disruption in the country's fiscal landscape. This ruling nullifies several tax measures that were introduced to boost revenue collection and address economic challenges.
Key Tax Measures Affected:
Value Added Tax (VAT) and Levies:
VAT on petroleum products, excluding liquefied petroleum gas (LPG), was increased from 8% to 16%, significantly impacting fuel prices.
Zero-rated VAT on:
LPG
Locally assembled and manufactured mobile phones
Motorcycles of tariff heading 8711.60.00
Electric bicycles
Solar and lithium-ion batteries
Electric buses of tariff heading 87.02
Inputs or raw materials for manufacturing animal feeds
Bioethanol vapour stoves (cooking appliances and plate warmers for liquid fuel)
Tea and coffee locally purchased for value addition prior to exportation, subject to approval by the Commissioner General
Excise Duty:
Reduced rates on telephone and internet data services, money transfer services, and betting, gaming, lotteries, and prize competitions.
New excise duties on imported fish, powdered juice, sugar (excluding imported sugar purchased by pharmaceutical manufacturers), cement, furniture, cellular phones, paints, varnishes, lacquers, non-virgin test liner, non-virgin fluting medium, cartons, boxes, cases, plastic plates, and paper labels.
Housing Levy:
A mandatory 1.5% contribution from both employers and employees to the National Housing Development Fund was introduced but is anchored on the Affordable Housing Act, 2024, and thus remains unaffected.
Income Tax Changes:
New income tax rates for individuals, with a 32.5% rate on monthly income between KSh 500,000 and KSh 800,000 and a 35% rate on income over KSh 800,000.
Tax exemptions for travel allowances provided to employees for official duties and club entrance and subscription fees paid by employers.
A 15% relief on contributions to post-retirement medical funds, capped at KSh 60,000 per annum.
Digital Content Monetisation:
Withholding tax at 5% for residents and 20% for non-residents without a permanent establishment in Kenya.
Compliance and Administrative Changes:
Expenditures or losses not deductible unless invoices are generated through the electronic tax invoicing management system (e-TIMS) effective January 1, 2024.
Withholding tax to be remitted to the Kenya Revenue Authority within five days of payment.
Corporate and Other Taxes:
A 15% tax on repatriated income for non-residents with a permanent establishment in Kenya.
Corporate Income Tax (CIT) rate reduction from 37.5% to 30% effective January 1, 2024.
Reduction of the upper threshold for turnover tax from KSh 50 million to KSh 25 million, with an increase in the tax rate from 1% to 3%.
A new tax of 3% on income derived from the transfer or exchange of digital assets effective September 1, 2023.
Withholding tax on sales promotion, marketing, and advertising services for residents at 5% and digital content monetization to residents at 5% and to non-residents at 20%.
Reviewed advance tax for various vehicles.
Reduction in the residential rental income tax rate from 10% to 7.5%.
Mortgage interest claims capped at KSh 300,000 per year for individuals borrowing from a co-operative society.
A 3% tax on income from the transfer or exchange of digital assets.
The nullification of the Finance Act 2023 leads to significant uncertainty, as these measures were aimed at enhancing revenue collection and improving fiscal policy. The government may need to revert to using the Finance Act 2022 unless an appeal is successful.
For further updates, stay tuned to the Ministry of Finance's announcements
