Finance Bill 2024: A bitter pill for Kenyans
The Bill received its first reading in the National Assembly on May 13 and is currently being debated and analysed in the public domain.
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The Finance Bill 2024 has been described as a mixed bag of problematic and good proposals.
Through the bill, the National Treasury aims to raise Ksh3.354 trillion, made up of ordinary revenues of Ksh2.913 trillion and appropriations-in-aid of Ksh441 billion. This follows the review of the 2024/2025 Budget Policy Statement (BPS) by the Parliamentary Budget and Appropriation Committee, which approved expenditures of Ksh3.914 trillion.
The bill received its first reading in the National Assembly on May 13 and is currently being debated and analysed in the public domain.
The bill leans more towards Appropriations in Aid than what we have been seeing in the earlier Finance Bills. It goes heavy on Value-added Tax (VAT) exemptions and zero rating—for instance, bread will cease being VAT zero-rated, implying the suppliers will pass the cost to the end consumer.
There is also a proposal to exempt the Kenya Revenue Authority (KRA) from the restrictions of the Data Protection Act in accessing taxpayers’ data.
There is a positive proposal to amend the Income Tax Act, increasing the monthly allowable pension deduction from the current Ksh20,000 to Ksh30,000 (moving from a provision of either Ksh20,000 or 30 percent, whichever is lower, to a flat rate of Ksh30,000).
The motor vehicle tax
The bill proposes a 2.5 percent tax on the vehicle’s value, with the minimum set at Ksh5,000 and the highest at Ksh100,000. Given the surge in motor vehicles on Kenyan roads, the proposal seeks to widen the tax base by taxing motor vehicle owners.
Other key highlights
- VAT-related changes
- Banking services
Banking services are about to get more expensive since the following will no longer be VAT-exempt. (VAT will apply).
- Making of any advances or the granting of credit.
- Cheque handling, processing, clearing and settlement, issuance of credit & debit cards, telegraphic money transfers, foreign exchange transactions (including supply of foreign drafts and international money orders), management of unit trusts or collective investment scheme registered by the Capital Markets Authority (CMA) and managed by the trustees of the scheme.
Already, the Kenya Bankers Association (KBA) has released a statement on the proposed standards rating of VAT on banking services, urging Parliament to reconsider the proposal.
KBA Chief Executive Officer Raimond Molenje said, “The increased costs of banking to customers will hamper financial efforts, particularly affecting low-income individuals and small businesses. Coupled with excise duty, taxation on financial services would reach 40 percent from the current 15 percent (excise duty only), significantly impacting affordability and accessibility.”
- Other VAT-related changes
They include the proposal to remove the VAT exemption for betting, gaming, and lottery services and establish a standard VAT rate of 16 percent.
The bill further proposes VAT exemptions on certain goods and services in tourism, manufacturing, and construction sectors be removed, aiming to standardise the tax structure across various sectors.
- Excise Duty changes.
The Finance Bill 2024 proposes to raise excise duty for telephone and internet services, money transfer services by telecommunications providers, and fees charged for money transfer services from 15 percent to 20 percent.
Additionally, it is proposing to extend the excise duty related to adverts on alcoholic beverages, betting, gaming, lotteries, and prize competitions at a rate of 15 percent to include advertisements on the internet and social media.
It further proposes to amend a provision of the Finance Act 2023 mandating 24-hour excise duty remittance on alcoholic beverages by extending the period to five working days. The bill also contains a proposal to slap a 25 percent excise duty on vegetable oils.
So far, the Edible Oils Sub-sector of Kenya Association of Manufacturers (KAM) has warned of severe consequences of the proposed 25 percent excise duty on vegetable oils included in the Finance Bill 2024.
“If implemented, this excise duty will trigger an unprecedented surge in the price of cooking oil, a staple in Kenyan households. The cost of this essential commodity is projected to skyrocket by 80 percent, rendering it unaffordable for millions of Kenyans,” the Edible Oil Manufacturers Association of Kenya said in a statement.
- Digital Superhighway
Those operating in the digital space and monetising digital content will face a 20 percent tax for non-residents and five percent for residents. Further, the bill proposes a shift from a Digital Service Tax (DST) to a Significant Economic Presence Tax at 30 percent for certain non-residents.
- Infrastructure Bonds
The bill is proposing taxing interest income from Infrastructure Bonds (IFBs). Under these proposed changes, previously issued IFBs will not be eligible for taxation, but newly issued IFBs are set to be subjected to a five percent Withholding Tax (WHT).
- Tax Procedures Act
The bill wants to increase the timeframe for objection decisions from 60 to 90 days. Additionally, there is a proposal to exclude weekends and public holidays from the computation of tax-related deadlines. It is further pushing for integration of KRA’s system to make it mandatory for certain taxpayers to enhance real-time document submission and compliance monitoring.
- Export and Investment Promotion Levy
The bill is also seeking to reduce the Export and Investment Promotion Levy from 17.5 percent to a maximum of three percent on various items. The levy currently also applies to vodka, cooking stoves, milk & cream of a fat content by weight exceeding one percent but less than six percent.