The Finance Bill, 2021 (“the Bill) was published on 5th May 2021. It aims to amend various laws relating to taxes and duties including the Income Tax Act, Value Added Tax Act, Excise Duty Act, Tax Procedures Act, Miscellaneous Fees and Levies Act, Capital Markets Act, Central Depositories Act, Kenya Revenue Act, Insurance Act and the Retirement Benefits Act.

We have highlighted below the major amendments proposed by the Bill:

1.  Income Tax Act, Cap. 470

Some of the amendments proposed to the Income Tax Act include:

     a. Expansion of the application of Digital Service Tax

The Bill proposes to expand the application of income tax to all income accrued from business carried out over the internet or electronic network. The current provision, in comparison, only imposes income tax on income accrued through a digital marketplace.

The Bill also proposes a new definition of digital marketplace to mean an online platform that enables users to sell or provide services or goods to other users. The current definition states that it is a platform that enables buyers and sellers to interact through electronic means, which is ambiguous in interpretation.

If the Bill is passed, the implication of this broadened definition would be to widen the tax base that will be subject to Digital Service Tax.

     b. Digital Service Tax (“DST”) charged on non-resident persons only

Another proposal is for DST to be charged on non-resident persons only. However, DST will not apply to income that is subject to withholding tax or income from non-residents in telecommunication or broadcasting business.

The rationale behind this proposal is that resident persons earning income through online platforms are already subject to income tax and should therefore not be charged DST.

Though the current provision allows residents to offset the DST payable against their income tax, the new proposal simplifies the process of preventing double taxation and will therefore be a welcome relief to many residents running businesses in the digital marketplace.

     c. Removal of time-limit on carry forward of losses

The Bill also proposes to remove the 10-year limit provided for the carry forward of taxable losses. The proposed change would enable taxpayers to offset taxable losses against future profits until they are fully exhausted which will be a great opportunity for many businesses to recover from their losses especially following the negative impact of the COVID-19 pandemic.

     d. Tax Relief on NHIF Contributions

The other major proposal in the Bill is the introduction of tax relief to persons who contribute to the NHIF. The proposed tax relief will be equivalent to 15% of the premium paid with a monthly limit of Kshs. 5,000/=.

This change will benefit all employees in Kenya since NHIF is mandatory. It will also encourage those who are self-employed to make contributions to NHIF.

     e. Expansion of tax relief for apprenticeships

Employers who engage students from technical and vocational education centres for apprenticeship also stand to benefit from the Bill. It proposes that such employers enjoy tax rebates equal to 50% of salaries paid if they hire at least 10 apprentices for a period of 6-12 months Currently, only employers who engage university students enjoy this tax rebate.

     f. Additional Reporting for Multinational Companies

An Ultimate Parent Entity of a Multinational Enterprise Group will be required to submit to KRA the group’s financial returns of its activities in Kenya and in other jurisdictions where the group has a tax presence. The return should be made within 12 months after the last day of the group’s financial year. An Ultimate Parent Entity is defined as an entity that is resident in Kenya for tax purposes, is not controlled by another entity, and owns and controls a multinational enterprise group. If passed, this proposal would enhance transparency and disclosure by companies.

Other amendments proposed by the Bill include new definitions of the words ‘control’, ‘permanent establishment’ and ‘infrastructure bond’.

2.  Value Added Tax Act, 2013 (“VAT Act”)

The proposed amendments to this VAT Act include:

     a. Expansion of the definition of digital services

Similar to the amendment proposed to the Income Tax Act, the Bill proposes to expand the definition of digital services to include supplies made over the internet or electronic network. This will increase the tax base upon which VAT will be charged including supplies made on social media platforms. Currently, only supplies made through a digital marketplace are subject to VAT.

     b. Taxation of Bread

Currently, bread is a zero-rated commodity, meaning that it is not subject to VAT. If this proposal is passed, VAT will be imposed on bread which will result in an increase in the price of bread since the tax will likely be passed on to the consumers.

     c. Further restriction on claiming input VAT

The Bill proposes to create an additional restriction on claiming of input VAT. A registered person will not be allowed to deduct input VAT if it relates to the leasing or hiring of passenger cars or mini buses and the repair and maintenance thereof including spare parts. The current provision only prohibits deduction if it relates to the acquisition of the passenger cars and mini buses.

     d. Acquisition of medical equipment exempt from VAT

The Bill proposes some medical equipment to be exempt from VAT which is likely to reduce the cost of medical care and also improve the provision of healthcare services in the country.

     e. Zero-rated to Exempt Services

The Bill seeks to change the VAT status of exported services and transfer of assets into REITs and Asset-Backed Securities from zero-rated to exempt supplies. This proposal is aimed at reducing the claims for VAT refunds that arise from the zero-rated status of these services.

3.  Excise Duty Act, 2015

The Bill seeks to introduce a provision that allows licenced internet data providers to offset the excise duty paid on the purchase of data in bulk for resale against the excise duty that would be payable on the supply of the internet data services to the final consumer.

Further, the Bill seeks to reintroduce excise duty on betting at a rate of 20% of the amount wagered or staked. This provision had been removed by the Finance Act 2020.

The Bill also proposes to impose excise duty on fees and commissions earned on loans.

4.  Tax Procedures Act, 2015

The following amendments are proposed to the Tax Procedures Act, among others:

     a. Increase in period of record keeping and assessment – The Bill proposes to increase the period of record retention from 5 years to 7 years. This proposal is in line with the provisions of the Companies Act on record keeping. It also proposes to extend the period within which KRA or a person can amend their filed tax return from 5 years to 7 years.

     b. Introduction of Common Reporting Standards (CRS) – The Bill proposes a mandatory requirement for financial institutions, resident in Kenya or with foreign branches in  Kenya, to report to KRA reportable accounts specified by the CRS Regulations that will be developed and published by the Cabinet Secretary, National Treasury. The aim of this proposal is to enhance disclosure and compliance.

     c. Non-resident’s reporting currency – Non-residents carrying out business in a digital marketplace are exempt from maintaining financial records in Kenya Shillings and are allowed to maintain them in convertible foreign currency(ies).

     d. Removal of Withholding VAT exemption – It is proposed that all provisions of the Act that allow KRA to exempt suppliers with VAT credits for at least 2 years from Withholding VAT be deleted.

     e. Digital Service Providers to have KRA PIN - The Bill proposes to impose a requirement for digital service providers to have a KRA PIN. This implies that all digital service providers who have income accrued in Kenya, including non-residents will have to be registered for tax in Kenya.

5.  Capital Markets Act, Cap. 485A

The Bill seeks to introduce a 90-day period within which appeals before the Capital Markets Tribunal should be heard and determined. If passed, this will expediate the resolution of matters before the Tribunal.

6.  Insurance Act, Cap. 487

The Bill proposes a new definition of broker to include foreign reinsurance broker despite the fact that they do not undertake direct insurance business or do not have a place of business in Kenya. This amendment would grant the Insurance Regulatory Authority (“IRA”) power to supervise and regulate foreign reinsurers brokers who are currently not regulated.

The Bill also proposes to introduce a prescribed annual fee for all insurers licenced under the Act. The aim of this amendment is to enable the IRA increase its source of revenue given that insurers are no longer required to renew their registration annually and therefore the IRA no longer receives annual renewal of registration fees.

7.  Retirement Benefits Act, 1997

The main amendment proposed to this Act is the registration and regulation of corporate trustees that provide services to pension schemes by the Retirement Benefits Authority (“RBA”). The proposed amendment is aimed at promoting proper supervision of corporate trustees by the RBA.

8.  Central Depositories Act, 2000

The Bill proposes the following amendments to this Act:

     a. Definition of beneficial owner and legal owner – These definitions are in line with the Companies Act 2015 and the new Regulations on Beneficial Ownership Registers and they will promote the regulation of investors;

     b. Definition of authorized nominee and omnibus account – An authorized nominee is a person appointed by a legal or beneficial owner of securities to open a Central Depository Systems account (“CDS account”) and transact on their behalf. Such authorized nominee can open a CDS account on behalf of two or more legal or beneficial owners in which case the account will be referred to as an omnibus account;

     c. Provisions on the appointment and duties of an authorized nominee.

The Bill went through the First Reading in the National Assembly on 11th May 2021 and has 3 more stages of review in the National Assembly before it is submitted to the President for his assent.

Article by Ivyn Makena and George Ngatiah

Published on June 11, 2021



This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it.

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