The government has proposed to restore some of the tax measures it scrapped from the controversial Finance Bill 2024 that was repealed following public uproar.
Through the Ministry of Treasury, the tax measures will be consolidated into three new bills that will be tabled before Parliament: Tax Laws (Amendment) Bill, 2024, Tax Procedures (Amendment) Bill, 2024 and Public Finance Management (Amendment) Bill, 2024.
Unlike in the past where the government tabled the bills without much fanfare, this time round the Treasury has posted a two-page explainer on the local dailies to provide a detailed account of the new proposals.
This is seen as a lesson from the Finance Bill 2024 that the State insisted had much to offer to Kenyans but was opposed due to widespread misinformation.
The move now risks further unrest from the public as new taxes would pile pressure on a population that is already struggling with the high cost of living.
Treasury CS John Mbadi said that the new bills would spur economic growth and assist in bridging the fiscal deficit through enhanced revenue collection..
Following the withdrawal of the Finance Bill, 2024, the government estimated a deficit of Ksh.346 billion.
Here are some of the tax measures that are making a comeback.
Expand the Digital Marketplace
Much like the Finance Bill, the Tax Laws (Amendment) Bill, 2024 will seek to amend Section 3 of the Income Tax Act to include more digital operators into the tax bracket.
This will now include ride-hailing services 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 introduce the minimum top up tax. This is a new measure that will ensure multinational companies operating in Kenya pay a minimum tax rate of 15 per cent.
The multinational companies must, however, have a consolidated annual turnover of Ksh.100 billion.
Pension contributions to increase to Ksh.30,000 monthly
The limit for pension contributions will be increased from Ksh.240,000 per year to Ksh.360,000. This translates to Ksh.30,000 monthly for both the employee and the employer.
Introduction of withholding tax on goods supplied to public entities
The bill will also introduce a withholding tax on goods supplied to a public entity (such as a government office) at a rate of 0.5 per cent to a resident person and 5 per cent for non-resident.
The rates are, however, different from the repealed Finance Bill 2024, as it proposed a 3 per cent for resident persons.
This means that if a resident individual sells goods worth Ksh.100,000, they will pay Ksh.500 as tax. On the other hand, a non-resident individual selling the same amount will remit Ksh.5,000.
Economic Presence Tax
The bill further seeks to introduce the Significant Economic Presence Tax that will be subjected to non-resident people who earn an income from the digital marketplace.
It will seek to replace the Digital Service Tax whose previous rate was 1.5 per cent. Now, digital operators will pay a tax rate of 6 per cent.
According to Mbadi, the taxation of digital services will align with international best practices.
Infrastructure bonds to be taxable
In the past, infrastructure bonds have attracted interest from investors due to their tax-free status.
In the repealed Finance Bill, the government proposed to tax the interest earned from infrastructure bonds for resident persons as foreigners would continue to be exempt.
The new bill, however, proposes a 5 per cent tax rate from interest accrued from infrastructure bonds.
Make KRA PIN Mandatory for Kenyans working remotely
Another clause in the repealed Finance Bill that is set to make a comeback is the mandatory requirement of KRA PIN for Kenyans working remotely.
According to the Draft Tax Procedures (Amendment) Bill, 2024, this applies to all employees working remotely outside Kenya for an employee in Kenya.
Affordable Housing, SHIF tax deductible
Contributions made to the Housing Levy and the Social Health Insurance Fund (SHIF) will now be tax deductible should the Tax Laws (Amendment) Bill, 2024 pass.
Under the new bill, Kenyans will be entitled to insurance reliefs from both contributions hence reducing the amount taxable from one’s income.
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