Gov’t Reintroduces Rejected Tax Measures From Controversial Finance Bill 2024
The government has proposed restoring some of the tax measures removed from the contentious Finance Bill 2024, which was repealed following public outrage.
The tax measures will be consolidated by the Ministry of Treasury into three new bills that will be introduced in Parliament: Tax Laws (Amendment) Bill, 2024, Tax Procedures (Amendment) Bill, 2024, and Public Finance Management (Amendment) Bill, 2024.
Unlike in the past, when the government tabled the bills with little fanfare, the Treasury has published a two-page explainer in the local dailies to provide a detailed account of the new proposals.
This is seen as a lesson from the Finance Bill 2024, which the State insisted had much to offer to Kenyans but was opposed due to widespread misinformation.
The move now risks causing further public unrest because new taxes would put additional strain on a population already struggling with high living expenses.
Treasury Secretary John Mbadi stated that the new bills would boost economic growth and help to bridge the fiscal deficit through increased revenue collection.
Following the withdrawal of the Finance Bill for 2024, the government estimated a Ksh.346 billion deficit.
Here are some of the tax policies that are making a comeback.
Expand the Digital Marketplace
Similar to the Finance Bill, the Tax Laws (Amendment) Bill, 2024 seeks to amend Section 3 of the Income Tax Act to include more digital operators in the tax bracket.
The government has issued an explainer on four crucial proposed Bills:
— Mwango Capital (@MwangoCapital) October 31, 2024
—The Tax Laws (Amendment) Bill, 2024
—The Tax Procedures (Amendment) Bill, 2024
—The Public Finance Management (Amendment) Bill, 2024
—The Business Laws (Amendment) Bill, 2024 pic.twitter.com/VsDwJoJGdQ
This will now include ride-hailing and food delivery services, professional services, freelance services, rental services and ride-hailing services.
“This proposal is to expand the tax base by bringing the income of the owners of the digital platforms that offer the above services into the tax net,” the bill reads in part.
Minimum top-up tax
The Tax Laws (Amendment) Bill, 2024, also seeks to impose a minimum top-up tax.
This is a new measure that will ensure multinational corporations operating in Kenya pay a minimum tax rate of 15%.
Multinational corporations must, however, have a total annual revenue of Ksh.100 billion.
Pension contributions will increase to Ksh.30,000 per month.
The annual pension contribution limit will increase from Ksh.240,000 to Ksh.360,000. This translates to Ksh.30,000 per month for both the employee and the employer.
Introducing a withholding tax on goods supplied to public entities.
The bill also introduces a withholding tax on goods supplied to a public entity (such as a government office) at a rate of 0.5% to a resident person and five percent for non-residents.
The rates, however, differ from the repealed Finance Bill 2024, which proposed a 3% rate for residents.
This means that if a resident individual sells goods worth Ksh.100,000, they must pay Ksh.500 in tax. A non-resident selling the same amount, on the other hand, will have to pay Ksh.5,000 in taxes.
Economic Presence Tax
The bill also proposes the Significant Economic Presence Tax, which will apply to non-residents who earn money through the digital marketplace.
It intends to replace the Digital Service Tax, whose previous rate was 1.5 percent. Now, digital operators will pay a 6% tax rate.
I said yesterday that with the combined 7th & 8th Reviews disbursement having come short of target by some Kes 34.3 billion, we should see GOK revive the discussion around salvaging Finance Bill 2024 revenue raising measures (see quoted tweet).
— Julians Amboko (@AmbokoJH) November 1, 2024
Well, here we are with a:
1. Tax… https://t.co/d3A1ZVTHcT pic.twitter.com/nrbt28ixRT
According to Mbadi, the taxation of digital services will follow international best practices.
Infrastructure bonds to be taxable
Investors have previously expressed interest in infrastructure bonds due to their tax-free status.
In the repealed Finance Bill, the government proposed taxing the interest earned on infrastructure bonds for residents while exempting foreigners.
However, the new bill proposes a 5% tax on interest from infrastructure bonds.
Make the KRA PIN mandatory for Kenyans working remotely.
Another clause from the repealed Finance Bill that is set to resurface is the requirement for Kenyans to have a KRA PIN when working remotely.
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According to the Draft Tax Procedures (Amendment) Bill, 2024, this applies to all employees who work remotely for a Kenyan employee.
Affordable housing, with SHIF tax breaks
Contributions to the Housing Levy and the Social Health Insurance Fund (SHIF) will be tax deductible if the Tax Laws (Amendment) Bill, 2024, passes.
According to the new bill, Kenyans will be eligible for insurance relief on both contributions, lowering the amount taxable from their income.
Gov’t Reintroduces Rejected Tax Measures From Controversial Finance Bill 2024
