The Finance Act, 2023 (“the Act”) was assented to by President William Ruto on June 26, 2023 with most of its provisions expected to take effect from July 1, 2023 after eliciting rigorous discussions in and out of Parliament.
The Act contains various amendments to Kenyan tax laws and aims at raising additional revenue for the government to enable it to meet its budget of Kshs. 3.68 Trillion for the year 2023/2024.
The following is a highlight of some of the major changes the Act will make in the various Acts of Parliament:
- A. INCOME TAX ACT
Introduces two new tax bands in the Pay As You Earn (PAYE) tax, for the category of persons earning Kshs. 500,000 and above per month (Kshs 6,000,000 per year). Persons earning between Kshs. 500,000 – Kshs. 800,000 and Kshs. 800,000 and above will be subjected to PAYE at the rate of 32.5% and 35%, respectively (Effective July 1, 2023).
Increases the Turnover Tax rate of businesses from 1% to 3 % while also reducing the band for the same from Kshs. 1 Million – Kshs. 50 Million to Kshs. 1 Million to Kshs. 25 Million (Effective July 1, 2023).
Introduces a Digital Assets Tax at the rate of 3% tax on the income derived from the transfer or exchange of digital assets. The owner of a platform or the person who facilitates the exchange or transfer of a digital asset shall deduct the tax and remit it to the Commissioner within 5 working days after making the deduction together with a return of the amount of the payment and the amount of tax deducted (Effective September 1, 2023).
Reduces the rate of Monthly Rate Income (MRI) tax from 10% to 7.5%. This reduction is aimed at encouraging tax compliance for property owners and to also increase the government's revenue collection (Effective January 1, 2024).
Introduces a 5% withholding tax on earnings from social media content creators (Effective July 1, 2023).
On Capital Gains Tax (Effective July 1, 2023), the Act:
Introduces a Capital Gains Tax where a property is transferred in a transaction not subject to CGT and then sold in a taxable transaction within 5 years. The adjusted cost for the subsequent transfer will be based on the original adjusted cost of the first transfer.
Requires that Capital Gains Tax be due and payable on the earlier of: (i) receipt of full purchase price by the vendor; or (ii) registration of the transfer.
Taxes capital gains from selling shares or similar interests including those in a partnership or trust, if, within 365 days before the sale, more than 20% of their value came from immovable property in Kenya.
- B. THE EMPLOYMENT ACT, 2007 (Effective July 1, 2023)
The Act introduces a monthly levy, known as the Affordable Housing Levy, where both employees and employers are both subject to the levy at 1.5% of the employee’s gross salary. The responsibility lies with the employer to deduct and remit this levy within 9 working days following the end of the relevant month. The primary objective of this levy is to provide funding for the government's affordable housing agenda.
- C. VALUE ADDED TAX (VAT) ACT, 2013 (Effective July 1, 2023)
The Act doubles the rate of VAT on all petroleum products from 8% to 16% while exempting Liquefied Petroleum Gas (LPG) from VAT. As a result, the cost of fuel is expected to rise from July 1, 2023 where the Energy and Petroleum Regulatory Authority is expected to announce reviewed maximum pump prices.
- D.TAX PROCEDURES ACT, 2015 (Effective July 1, 2023)
The Act increases the timeline allowed for parties to negotiate and potentially settle disputes under the Alternative Dispute Resolution (ADR) framework from 90 days to 120 days. This will give the ADR framework more time to settle disputes.
It also sees to solve the problem of constant delays faced by the National Treasury in refunding verified tax claims by reducing the time taken by the Commissioner from 2 years to 6 months. This means that interest shall begin to accrue after 6 months.
Some of the changes introduced by the Act have met a lot of opposition from members of the public particularly the doubling of VAT from 8% to 16% on petroleum products where it is anticipated that this increase shall cause an increase in commodity prices as well as transport costs. However, the government still maintains its stance that this Act is intended to stabilize and improve the economy of the country and Kenyans can only brace themselves for its implementation.
Article by George Ngatiah & Grace Maina
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