Treasury proposes VAT increase to 18%

By Victor MUJIDU

The National Treasury has recommended an increase in the value added tax or VAT from the current 16 percent to 18 percent in a set of new tax proposals by the current regime.

The Kenya Kwanza government’s planned medium-term debt strategy for the years 2024–2025 and 2026–2027 includes a number of significant tax reform recommendations from the National Treasury.

The synchronization of the nation’s VAT with the member nations of the East African Community will be one of the highlights of the proposed tax revisions. Kenya levies a VAT of 16%, compared to most EAC states’ 18% rates.

“In order to streamline the taxation of alcoholic products, over the strategy period, the government will review the basis of taxation to the alcoholic content of the product taking into consideration the harmonization with EAC region,” reads the proposal in part.

There are two (2) rates of VAT; 16% (general rate), which is applicable to all taxable goods and taxable services other than zero rated supplies. 8 percent is applicable to goods listed in Section B (1) of the First Schedule of the VAT Act 2013.

The Finance Bill, 2023 had proposed to exempt the transfer of business as a going concern from VAT. This provision had initially been expunged from the Finance Act and it was expected to remain taxable at the rate of 16%, but that looks unlikley to happen now under the new proposals as President William Ruto looks for more funds through taxes to run his government.