Tax Management

Tax Laws (Amendment) Bill, 2024

December 2, 2024 Comments Off on Tax Laws (Amendment) Bill, 2024

The Tax Laws (Amendment) Bill, 2024 and the Tax Procedures (Amendment) (No. 2) Bill, 2024 propose substantial reforms across several Kenyan tax laws. These amendments aim to enhance revenue collection, align with international standards, simplify compliance, and promote economic growth. Below is a detailed and easy-to-understand summary of the proposed changes and their potential impacts.

1. Employment Taxes and Reliefs

  • Tax-Free Thresholds:
    • The tax-free threshold for non-cash benefits is increased from KES 36,000 to KES 60,000 annually.
    • The annual tax-free value for meal benefits rises from KES 48,000 to KES 60,000.
  • Gratuity Contributions:
    • The tax-free gratuity paid into a registered pension scheme increases from KES 240,000 to KES 360,000 annually.
  • Social Health Insurance Fund (SHIF):
    • Contributions to SHIF are now deductible when determining taxable income, replacing relief on National Health Insurance Fund (NHIF) contributions.
  • Affordable Housing Levy (AHL):
    • Uncapped relief is introduced for AHL contributions, allowing deductions based on marginal tax rates, replacing the capped 15% relief.

Impact: These changes aim to increase disposable income, cushion employees against inflation, and encourage saving for retirement.

2. Digital Economy Taxation

  • Significant Economic Presence Tax:
    • Replaces the Digital Services Tax (DST), increasing the tax rate from 1.5% to 3%. This applies to non-resident companies earning income through digital platforms in Kenya.
  • Withholding Tax on Digital Platforms:
    • Payments for digital content, goods, or services on digital platforms are subject to 5% withholding tax for residents and 20% for non-residents.

Impact: These measures aim to enhance tax compliance in the digital economy but may increase the cost of digital services.

3. Corporate Taxes and Business Incentives

  • VAT Exemption for Business Transfers:
    • Transfers of businesses as a going concern are exempt from VAT, simplifying mergers and restructuring.
  • Capital Gains Tax (CGT):
    • Reduced from 15% to 5% for investors certified by the Nairobi International Financial Centre (NIFC) who have invested at least KES 3 billion for five years.

Impact: These changes make Kenya more attractive for investment and streamline business operations.

4. Changes to Value Added Tax (VAT)

  • Delisted Exemptions:
    • Certain goods and services, including tourist vehicles, air ticketing services, and betting services, are now subject to VAT at 16%.
  • New VAT Exemptions:
    • Inputs and raw materials for fertilizers and pest control products are VAT-exempt to support agriculture.
    • Baby diaper and sanitary towel manufacturing inputs are VAT-exempt to reduce production costs.

Impact: While these changes aim to increase revenue, they could raise costs for tourism services and other delisted goods. Conversely, VAT exemptions may lower costs for essential goods like fertilizers and hygiene products.

5. Excise Duty Updates

  • Locally Assembled Electric Vehicles:
    • Exempt from excise duty to promote green transportation.
  • Alcoholic Beverages:
    • Excise duty payment deadlines for alcohol manufacturers extended from 24 hours to five working days, easing cash flow challenges.
  • Nicotine Products:
    • Excise duty on nicotine products, including liquid nicotine, increased to discourage consumption.

Impact: These measures aim to encourage environmental sustainability and healthy lifestyles while easing compliance for businesses.

6. Tax Administration and Compliance

  • Electronic Tax Systems Integration:
    • Businesses with turnovers exceeding KES 5 million must integrate their systems with the Kenya Revenue Authority (KRA) to share transactional data. Non-compliance may result in penalties of KES 2 million monthly.
  • Extension of Tax Amnesty:
    • Taxpayers have until June 30, 2025, to settle outstanding taxes from before December 31, 2022, to qualify for amnesty on penalties and interest.
  • Commissioner’s Powers:
    • Restores the Commissioner’s authority to abandon tax collection in cases of hardship, with Cabinet Secretary approval and parliamentary oversight.

Impact: These changes promote transparency and efficient tax administration while offering relief to struggling taxpayers.

7. Sector-Specific Amendments

  • Agriculture:
    • VAT exemptions for fertilizers and pest control inputs aim to boost productivity and lower costs for farmers.
  • Tourism:
    • Removal of VAT exemptions for tour operators and national park entry fees may increase costs for tourists.
  • Manufacturing:
    • Tax reliefs for inputs like baby diapers and sanitary towels support local industries.

Impact: These sector-specific changes balance support for local industries with increased revenue generation from high-value sectors like tourism.

8. Miscellaneous Provisions

  • Refund Deadlines:
    • VAT refund applications must now be made within six months instead of five years, encouraging prompt filing.
  • PIN for Remote Employees:
    • Employers must register remote employees working for Kenyan companies abroad for tax purposes.

Impact: These provisions streamline processes but may require businesses to adopt stricter compliance measures.

Conclusion

The Tax Laws (Amendment) Bill, 2024, introduces comprehensive reforms to modernize Kenya’s tax system. While aiming to increase revenue and improve compliance, the changes also address inflation, support environmental initiatives, and promote key sectors like agriculture and manufacturing. Businesses and individuals should familiarize themselves with these changes and seek expert guidance to maximize benefits and navigate new obligations.