Tax experts analyses of the Finance Bill 2023 and its implications on you
These are some of the implications to ordinary citizens if the Bill is enacted to law.
The Finance Bill 2023 was tabled before the National Assembly on May 4 for the first reading. The proposals in the Bill are significant and will have impact on your personal life and finances and businesses operations.
It appears that the government through the National Treasury is continuing to pursue a policy of revenue mobilization by increasing tax rates, expanding the tax base and collecting taxes in real time.
The Bill proposes to amend the following laws:
- Income Tax Act (ITA)
- Value Added Tax, 2013 (VAT Act)
- Excise Duty Act, 2015
- Tax Appeals Tribunal Act (TAT Act)
- Tax Procedures Act (TPA)
- The Miscellaneous Fees and Levies Act, 2016 (MFLA)
- Betting, Gaming and Lotteries Act
- Kenya Road Board Act, 1999
- Kenya Revenue Act, 1995
- Employment Act, 2007
- Retirement Benefits Act
- Unclaimed Financial Assets Act, 2011
- Statutory Instruments Act, 2013
Tax experts from PwC Kenya and KPMG Kenya have provided an analysis of the changes proposed by the Bill.
Here are some of the proposed changes that will have a significant impact at the individual level.
- High Pump Prices
The Bill proposes to subject petroleum products (excluding Liquid Petroleum Gas) to VAT at a standard rate of 16 percent. The proposed effective date is July 1, 2023.
The VAT rate of 8 percent on petroleum products was introduced in 2018. This was after the transition clause which provided for an exemption of the VAT on such products for a period of two years expired.
“This proposal is likely to impact the prices of transport and production of goods increasing the inflationary pressure in the economy,” says tax experts from KPMG Kenya.
2. LPG relief
The Bill proposes to exempt Liquefied Petroleum Gas (LPG) from VAT. VAT of 16 percent on LPG was introduced through the Finance Act of 2020, but the implementation was suspended in July 2021 amid concerns over the high cost of living. Subsequently through the Finance Act 2022, when the VAT was implemented on LPG, the rate was reduced to 8 percent.
Tax experts note that by exempting VAT on LPG, it is expected that this will impact the household cost while at the same time, positively impacting the climate. “However, any input VAT incurred by the suppliers of LPG will become a cost and this may be passed on to the consumers negating the much-needed relief.”
3. Retention of zero rate on wheat/maize flour
The Bill proposes that the supply of maize (corn) flour, cassava flour, wheat or meslin flour and maize flour containing cassava flour, by more than ten percent in weight.
KPMG Kenya says, “The proposed amendment in the Finance Bill is meant to clarify that the supply of maize (corn) flour, cassava flour, wheat or meslin flour and maize flour containing cassava flour by more than ten percent in weight will be zero-rated, should the law be passed. Currently as worded, there are two conflicting provisions in the First and Second Schedule of the VAT Act.”
4. Taxation of payments made to digital content creators
The Bill proposes to charge Withholding tax at 15 percent on “digital content monetisation”. This includes offering payment for entertainment, social, literal, artistic, educational or any other material electronically through any medium or channel, in the following forms: Website advertisement, social media platform, brand sponsorship, affiliate marketing, subscription services, merchandise sales, exclusive content membership programmes, licensing content including photograph, music, or user own projects and crowd funding for specific goals for content creators.
The proposed effective date for this is September 1, 2023.
Tax experts say that the proposal intends to bring into the tax net digital content creators or influencers in the wake of their mushrooming lucrative content business.
“It is important to note that the Bill does not provide a threshold for the taxable amount implying that any income will be taxable regardless of the value earned,” KPMG Kenya team says.
5. Introduction of the Digital Assert Tax (DAT)
The rapid growth in the adoption and trading of the cryptocurrencies in Kenya has resulted in the government seeking to collect taxes in this area.
Unlike other assets where it is the gain that is subject to tax, the government has opted to tax the gross fair market value in the case of digital assets. This may be viewed as inequitable particularly at a time where most cryptocurrencies are losing their value as the Kenya Revenue Authority (KRA) will in effect be taxing losses.
“The requirement to deduct and remit DAT together with returns within 24 hours after making the deduction will be quite onerous on the part of the operators of digital assets exchange platforms. This is particularly so given that many of the platform operators are non-resident. This can heighten the risk of non-compliance,” says the PwC Kenya team.
They further state, “It appears that this tax applies only to Kenyan residents trading on any platform. This would be a departure from the Income Tax Act that taxes on the basis of whether income is “accrued or derived from Kenya” rather than on residency. It may also be highly impractical for non-resident operators of platforms to distinguish between Kenya residents and other traders.”
6. Deductions into the National Housing Development Fund
The introduction of additional deductions from employee emoluments will further reduce the take-home pay of employees.
PwC Kenya team says this proposal will also overburden employers with increased cost of employment and may lead to loss of current employment or potential employment opportunities.
“We further note that the Bill does not define the term employee for the purposes of implementing the proposed changes. This is likely to make the provisions apply indiscriminately on non-resident individuals who may be working in Kenya temporarily and thus have no desire to benefit from the housing fund in Kenya,” the PwC Kenya team says.