What is the finance bill 2023 in Kenya and why is it contentious?

By Victor MUJIDU

The Bill proposes to increase the highest tax band for personal taxes to 35% for employees earning more than KES 500k monthly (KES 6m annually).

The contentious bill further proposes to reduce the rate of tax with respect to residential rental income from 10% to 7.5% of the gross rental receipts of a taxable resident person.

It has also proposed to add a 3% tax on the income earned from the transfer or exchange of digital assets. The owner of the platform or the person who facilitates the transfer or exchange will be required to deduct the digital asset tax and remit it to the Commissioner within 24 hours after deduction.

The effect of the tax will mean more micro businesses with now be subject to taxation which the basket of TOT increases from the higher tax rate.

In addition, the person will be required to file a return detailing the amount of payment, tax deducted and any other details required by the Commissioner. A nonresident person who owns a digital platform where digital assets are transferred or exchanged will be required to register under the simplified tax regime.

If enacted (potentially on September 1, 2023), the proposal will enable the government to boost its revenue collection by tapping into a niche that is growing rapidly.

The Kenya Revenue Authority (KRA) has recently been enforcing compliance with electronic tax invoicing system. This was rolled out via the Tax Invoice Management System (TIMS) and most recently e-TIMS. All VAT registered taxpayers are required to comply with the relevant regulations.

In an expected far-reaching change for businesses, the Bill now proposes to disallow deductibility for corporate income tax any expenditure or loss where the supporting invoices of the transactions are not generated from an electronic tax invoice management system except where the transactions have been exempted in accordance with the TPA.

A few years ago, Rwanda adopted a similar approach and it is notable that the Kenyan Government recently indicated intention to borrow from certain tax collection measures adopted by Rwanda.

Why is the Bill so antagonistic?

The National Assembly will deliberate the controversial Finance Bill when it resumes its sittings this week and President William Ruto is keen to push for the proposals that have put his government on the receiving end.

Upon resumption, the House is expected to consider the Finance Bill (2023) which provides for the ways and means of financing the 2023/2024 Budget.

The Finance Bill which outlines areas where the government intends to raise taxes will be tabled on June 13, two days before the presentation of the Budget. The Bill also seeks to amend various laws relating to taxes and duties with the objective of increasing government revenues from taxes collected.

Key among the contested clauses is the Housing levy of 3 per cent and the 8 per cent on fuel. But according to Ichung’wah, contrary to the accessions that the Housing levy is being forced on Kenyans, the House will consider all the amendments brought by members and the public.

The Opposition coalition has also opposed the Finance Bill on grounds that the three per cent turnover tax on small businesses will see their annual taxes go up.