AN OVERVIEW OF THE PROPOSED FINANCE BILL 2023

AN OVERVIEW OF THE PROPOSED FINANCE BILL 2023 

The Finance Bill, 2023 (the “Bill”) aims at expanding the tax base of the Government of Kenya. The Bill has attracted nationwide interest as the Government seeks to increase taxes collected in view of the prevailing economic circumstances. The Bill is the most comprehensive Finance Bill yet, and proposes a raft of changes, as highlighted below.

HIGHLIGHTS OF THE BILL

1. VALUE ADDED TAX (VAT)

The Bill proposes as follows;

1. Introduction of VAT on insurance compensation – compensation on lost taxable supplies made by insurance companies be subject to VAT.
2. Introduction of 16% VAT on petroleum and petroleum products– petroleum and petroleum products be taxable at 16% up from the current reduced rate of 8% that has been in place since 2019.
3. Exemption of LPG from VAT– Liquid Petroleum Gas (LPG) be exempt from VAT. LPG is currently subject to a VAT rate of 8%.
4. Introduction of VAT obligation for non-residents– Non-residents offering services in Kenya but with no place of business within the country, e.g. for those in digital spaces will now be required to register for VAT.
5. Introduction of stringent conditions for claiming input VAT- Taxpayers claiming input VAT to ensure that their suppliers have registered for VAT and provide the required documentation to that effect.
6. Exemption of TOGC from VAT- business undergoing a transfer of going concern (TOGC) be exempted from paying VAT.

2. EXCISE DUTY (ED)

The Bill proposes as follows;

1. Increase of ED on betting, gaming, and lottery- the rate of ED payable on winnings from betting, lottery and gaming be increased from the current rate of 7.5% to 20%.
2. Introduction of ED on betting, lottery and alcohol advertisements- ED be chargeable on such advertisements at a rate of 15%.
3. Payment of ED on betting and gaming transactions be made within 24 hours of the transactions- excise duty on betting and gaming offered through a platform or other medium be remitted to the KRA by a bookmaker within 24 hours from midnight of the relevant day.
4. Adjusted ED rates on money transfer- mobile money transfer to attract increased ED rates of 15% up from the current 12%. However bank transfers and money transfer agencies are proposed to attract a lower rate of 15% from the current 20%. The Bill proposes to introduce ED on Payment service providers (PSPs) at a rate of 15%.
5. ED rates on digital lenders- the scope of ED payable by digital lenders increased to all charges, and not only on fees as is the current status.
6. Introduction of new items subject to ED- this includes, imported fish, human hair wigs, weaves and artificial nails. 

3. CAPITAL GAINS TAX (CGT)

The Bill proposes as follows;

1. Expanded scope of CGT- CGT be payable on gains made on alienation of shares that derived more than 20% of their value from immovable property situate within Kenya.
2. Updated due date of CGT- the date on which CGT will be due is proposed to be updated to either the date on which the vendor receives full payment of purchase price, or the date on which the transfer is registered; whichever is earlier.

4.TAX PROCEDURES

A. TAX APPEALS TRIBUNAL (TAT)

1. Introduction of a requirement to pay 20% deposit on appeals- taxpayers be required to deposit 20% of the tax in dispute as security before appealing a decision of the TAT at the High Court.
2. Expanded list of documents required during TAT appeals- taxpayers may submit any additional documents that will assist the Tribunal arrive at a decision. Currently the documents required are the Memorandum of Appeal, Statement of Facts and the Tax Decision being appealed against.

B. TAX PROCEDURES ACT

1. Introduction of a tax amnesty on interest and penalties- taxpayers with interest and penalties due before the 31^st of December, 2022 shall be entitled to a waiver by the Commissioner.
2. Extension of time to settle disputes- the timeline for out of court settlement of disputes to be increased from 90 days to 120 days.
3. Offset of overpaid taxes against existing liability- the Bill proposes a reduction on the time the Commissioner must refund overpaid taxes from the current 2-year window to 6 months, failure to which the overpaid amount will be automatically applied to the existing liability.
4. Expansion of power of the Commissioner to collect taxes- to recover due taxes, the Commissioner can collect money from a person owing money to a taxpayer.

5. PERSONAL INCOME

1. Amendment to personal income tax rates– there is a proposal to introduce a higher personal income tax rate of 35% on the income of individuals which is above KES 6,000,000 per year (KES 500,000 per month). 
2. Increase on the National Housing Development Fund Levy- employers and employees be required to remit 3% towards contribution to the National Housing Development Fund up from the current 1.5%.
3. Introduction of a Post-Retirement Medical Fund Relief- the Post-Retirement Medical Fund shall be open to anyone who wishes to save medical premiums for their retirement years. The Bill proposes that such funds be entitled to a tax relief of 15%, or KES 60,000/= per annum, whichever is lower.

6. OTHER PROPOSALS RAISED BY THE BILL

1.Taxation of ESOP benefits for employees of start-ups– taxation of ESOP benefits for employees of startups will be deferred and not taxed immediately the option is exercised but will be taxed within 30 days of the earlier of:  

1. the expiry of 5 years from the date the option was granted; 
2. the disposal of the shares by the employee; or  
3. the date the employee ceases to be an employee of the eligible startup. 

2. Introduction of tax on digital assets– a new Digital Asset Tax is proposed at the rate of 3% and it will be applicable to the income derived from the transfer or exchange of digital assets. Digital assets are defined to include:  

1. Anything of value that is not tangible and crypto currencies, token codes, numbers held in digital form and generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration that can be transferred, stored or exchanged electronically; and
2. A non-fungible token or any other token by whatever name called.

3. Taxation of branches/permanent establishments – there is a proposed reduction of the non-resident corporate tax rate from 37.5% to 30% from January 2024.

4. Reduction of the rate of Import Declaration Duty and Railway Development Levy– the rate of import declaration fees is proposed to be reduced from 3.5 to 2.5% and that of railway development levy from 2% to 1.5%

5. Expansion of scope of withholding tax– it is proposed to subject to withholding tax the following payments to resident persons: 

1. payments made in relation to sales, promotion, marketing and advertising services at the rate of 5% of the gross amount the aggregate value of which is at least KES 24,000 in a month; and
2. payments made in relation to digital content monetization at the rate of 15%.

Disclaimer; This Article only briefly highlights the proposals in the Bill, and does not constitute legal advice. Should you have any queries, please contact the firm.