HIGHLIGHTS OF THE FINANCE ACT 2023 INCOME TAX ACT

Amendments to the taxation of employment income:

• Amounts received by an employee as payment of travelling allowance to perform official duties have been excluded from taxation as gains from employment where such amounts are based on the standard mileage rate approved by the Automobile Association of Kenya.

• Club entrance and subscription fees paid by employer on behalf of the employee shall be treated as a benefit and taxed on the employee. The expenditure will be allowed against the employer’s income.
• Clarifies that the market value of a share for purposes of taxation as a benefit shall be when the employee exercises the option as opposed to the date the option is granted.
• Allows for deferment of taxation of the benefit of shares allocated to an employee where the employee is offered company shares in lieu of cash emoluments.

 

 Effective date: 1st July, 2023

 

 

2. Taxation of Repatriated Income for Non-residents.

Introduces the taxation of repatriated income for non-residents with a permanent establishment in Kenya at a rate of 15% and reduce their Corporate Income Tax (CIT) rate to 30% from 37.5%.

 

 Effective date: 1st January, 2024

 

3. Turnover Tax

Lowered the upper threshold for turnover tax to KShs 25 million from the previous KShs 50 million and rate increased to 3% from the previous 1%.

 

Effective date: 1st July, 2023

 

4. Cryptocurrencies

Introduce tax on the income derived from the transfer or exchange of digital assets (such as crypto currency transactions) at a rate of 3%.

 

Effective date: 1st September, 2023 

 

5. Interest on Mortgages

Individuals to claim mortgage interest expense to a maximum of Kshs 300,000 per year incurred on money borrowed from a co-operative society.

 

Effective date: 1st January, 2024 

 

6. Filing of Income Tax Returns

Any expenditure or loss shall be not deductible if the invoices of the transactions are not generated from electronic tax invoicing management (e-TIMS)

 

Effective date: 1st January, 2024 

 

7. Introduce Withholding tax on the following payments:

• Sales promotion, marketing and advertising services for residents -5%
• Digital content monetization to residents at 5% and at 20% to non-residents;
• Rental income received on behalf of the owner of a premises provided that only a person appointed by the Commissioner in writing shall deduct tax with regard to rental income.

 

Effective date: 1st July, 2023 

 

8. Changes on the withholding due dates:

Withholding taxes should be remitted to the Commissioner within 5 working days after deduction is made. 

 

Effective date: 1st July, 2023 

 

9. The following items will be additional items that will be exempt from tax:

• Royalties & Interest paid to a non-resident person by a company undertaking the manufacture of human vaccines.
• Investment income from a post-retirement medical fund, whether or not the fund is part of a retirement benefits scheme.
• Income earned by a non-resident contractor, sub-contractor, consultant or employee involved in the implementation of a project financed through a 100% grant under an agreement between the Government and the development partner, to the extent provided for in the Agreement: 
• Gains on transfer of property within a special economic zone enterprise, developer and operator.
• Royalties, interest, management fees, professional fees, training fees, consultancy fee, agency or contractual fees paid by a special economic zone developer, operator or enterprise, in the first ten years of its establishment, to a non-resident person. 

 

Effective date: 1st January, 2023

 

10. For Pay As You Earn, there are the new individual tax rates of 32.5% and 35% on employment income above KES 6,000,000

 

 

Rate in each shilling

On the first KSh. 288,00 

10%

On the next KSh. 100,000

25%

On the next KSh. 5,612,000

30%

On the next KSh. 3,600,000

32.5%

On all income over KSh. 9,600,000

35%

 

 Effective date: 1st July 2023 

 

11. Corporate Income Tax on Vaccines

Introduce CIT rate of 10% for companies undertaking the manufacture of human vaccines. 

 

Effective date: 1st January, 2024 

 

12. WHT on Immovable Property

Withholding tax on payments for use of immovable property reduced from 10% to 7.5%. 

 

Effective date: 1st January, 2024 

 

13. Reviews the rate of advance tax:

• vans, pickup trucks, prime movers, trailers and lorries to KShs 2,500 per tonne of load capacity per year or KShs 5,000 per year whichever is higher.
• saloons, station wagons, mini-buses, buses and coaches to KShs 100 per passenger capacity per month or KShs 5,000 per year whichever is higher.

 

Effective date: 1st January, 2024 

 

14. Rental Income

Residential Rental income tax (MRI) rate reduced from 10% to 7.5%.

 

 Effective date: 1st January, 2024 

 

15. Digital Content Monetization

Digital content monetization will be subject to WHT at the rate of 5% for residents and 20% for non-residents without a permanent establishment in Kenya.

 

 Effective date: 1st July 2023

  

VAT ACT 2013

 

1. VAT on petroleum products  will be at the standard rate of 16%.
2. Removal of VAT on liquefied petroleum gas (LPG) – zero rated for VAT
3. Clarify that suppliers of imported digital services are required to register for VAT whether or not it has made taxable supplies or expects to make taxable supplies meet the KShs 5M annual threshold.
4. Exempt the following:

• all aircrafts and their parts.
• local purchases of plant and machinery of chapter 84 and 85 by manufacturers of pharmaceutical products or investors in the manufacture of pharmaceutical products upon recommendation of the CS for health.
• Taxable supplies for Companies under a SOFA incorporated for the purposes of undertaking other manufacturing activities including refining and whose capital investment is at least KShs 10B subject to the approval of the CS National Treasury
• Taxable supplies made to or by a school feeding programme recognized by the CS responsible for matters relating to education. 

5. Introduction of the following zero rated supplies:

• The exportation of taxable services;
• Inbound international sea freight services offered by a registered person;
• Liquefied Petroleum Gas (LPG);
• The supply of locally assembled and manufactured mobile phones;
• The supply of motorcycles of tariff heading 8711.60.00;
• The supply of electric bicycles.
• The supply of solar and lithium ion batteries;
• The supply of electric buses of tariff heading 87.02;
• Inputs or raw materials locally purchased or imported for the manufacture of animal feeds;
• Bioethanol vapour (BEV) stoves classified under HS Code 12.00 (cooking appliances and plate warmers for liquid fuel)
• All tea and coffee locally purchased for the purpose of value addition prior to exportation subject to approval by the Commissioner General.

 

 Effective date: 1st July, 2023

 

EXCISE DUTY ACT 2015

1. Deletes the provision that allows the Commissioner to annually adjust for inflation the specific excise duty rates.
2. Introduce for payment of excise duty within 24 hours from the closure of transactions of the day in respect to betting and gaming, offered through a platform or other medium.
3. Exclude electric motorcycles from imposition of excise duty
4. Increase excise duty rate on the following:

 

No.

Description

Previous rate

Current rate

 1.

Imported Glass bottles (excluding imported glass bottles for packaging of pharmaceutical products)

25%

35%

 2.

Imported Alkyd

10%

20%

 3.

Imported Unsaturated polyester

10%

20%

 4.

Imported Emulsion VAM

10%

20%

 5.

Imported Emulsion - styrene Acrylic

10%

20%

 6.

Imported Homopolymers

10%

20%

 7.

Imported Emulsion B.A.M

10%

20%

 

5. Change the excise duty rates on the following:

 

Item

Previous Rate

Current rate

1. Telephone and internet data services

20%

15%

2. Fees charged for money transfer services by Banks, money transfer agencies, and other financial service providers

20%

15%

3. Fees for money transfer services by cellular phone service providers and payment service providers licensed under ‘National Payment System Act, 2011.

12%

15%

4. Excise duty rate on betting; gaming; prize competition and on lottery

7.5%

12.5%

5. Advertisement on television, print media, billboards and radio stations on alcoholic beverages, betting, gaming, lotteries and prize competitions

None

15%

 

 

6. The following items have been brought under the tax net:

No.

Product

Excise Duty rate

 1.

Imported fish

10%

 2.

Powdered juice

Shs. 25 per Kg

 3.

Imported sugar excluding imported sugar purchased by a registered pharmaceutical manufacturer

Shs. 5 per Kg

 4.

Imported cement

10% of the value or shs. 1.50 per kg, whichever is higher

 5.

Imported furniture of tariff heading 9403 excluding furniture originating from EAC Partner States that meet the EAC Rules of Origin

30%

 6.

Imported cellular phones

10%

 7.

Imported paints, varnishes and lacquers of heading 3208, 3209 and 3210

15%

 8.

Imported non-virgin test liner of heading 4805.24.00

25%

 9.

Imported non-virgin fluting medium of heading 4805.19.00

25%

 10.

Imported cartons, boxes and cases of corrugated paper or paper board and imported folding cartons, boxes and case of non-corrugated paper or paper board and imported skillets, free-hinge lid packets of tariff heading 4819 .10 .00 , 4819.20.10 and 4819.20.90

25%

 11.

Imported plates of plastic of tariff heading 3919.90.90, 3920.10.90, 3920.43.90, 3920.62.90 and 3921.19.90

25%

 12.

Imported paper or paper board labels of all kinds whether or not printed of tariff heading 4821.10.00 and 4821.90.00

25%

 

 Effective date: 1st July, 2023

 

TAX PROCEDURES ACT 2015

1. Introduce amnesty on interest and penalties for principal tax due before the 31st December, 2022.
2. Offset or refund of overpaid tax

• Taxpayers will have the right to utilise overpayments for any outstanding debts.
• Refund of overpaid tax to be within 6 months from the date of ascertainment;
• The Commissioner shall be required to ascertain and determine an application subject to audit within 120 days failure to which, the application shall be deemed to have been ascertained and approved.

3. The period for settlement of dispute out of Court or Tribunal increased from 90 days to 120 days.
4. Provide an administrative penalty, which can be imposed for non-compliance with e-TIMS.

 

 Effective date: 1st July, 2023

 

 MISCELLANEOUS FEES AND LEVIES ACT

 

1. IDF rate reduced from 3.5% to 2.5%.

             RDL rate reduced from 2% to 1.5%.

2. Introduction of a levy known as the export and investment promotion levy paid by the importer of specified goods – rate of 17.5% or 10% depending on the item
3. The Act expands the scope of exemption from IDF and RDL for:

• goods for official use by diplomatic and consular missions.
• All aircraft, spacecraft, and parts thereof.
• All goods including material supplies for official use by the KDF and NPS

4. New exemptions from IDF and RDL:

• goods imported for official use by international and regional organizations that have agreements with Kenya.
• liquefied petroleum gas (LPG)
• The supply of denatured ethanol of tariff number 2207.20.00
• bioethanol vapour (BEV) stoves classified under HS Code 7321.12.00 (cooking appliances and plate warmers for liquid fuel).
• any other aircraft spare parts including aircraft engines imported by aircraft operators or persons engaged in the business of aircraft maintenance upon recommendation by the competent authority responsible for civil aviation;
• goods imported for use in the construction and maintenance of other manufacturing activities including refining.

 

Effective date: 1st July, 2023