News and Analysis
November 22, 2024
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The government frequently enacts new legislation to address emerging challenges, promote financial stability, and adapt to changing circumstances. 2023 has been full of them, as various money-related laws have been passed, shaping the financial landscape in ways that impact individuals and businesses.
These legislative measures span a spectrum of topics, from taxation to financial regulations. Keeping up with these new laws is vital in ensuring you avoid falling on the wrong side of the law and successfully adapting your finances as you move into the new year.
Here are 20 new money-related laws passed in 2023 that you need to know about.
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The Finance Act 2023 introduces a 3% tax on income earned from the transfer or exchange of digital assets.
The owner of the platform or the person facilitating the transfer or exchange of a digital asset is required to withhold the digital asset tax and remit it to KRA within five working days after the withholding.
The Bill defines digital assets to include anything of value that is not tangible, which can be cryptocurrencies, token codes, numbers held in digital form and generated through cryptographic means, and non-fungible tokens (NFT).
The surge in social media usage has given rise to a thriving digital economy, attracting various participants. Social media influencers, particularly, have capitalized on this opportunity by monetizing their digital presence. In response to the growing significance of digital channels, the Government has introduced a withholding tax (WHT) on income derived from digital content monetization.
The Finance Act defines digital content monetization as the provision of entertainment, social, literary, artistic, educational, or any other material for payment through electronic means, encompassing various mediums such as social media platforms and website advertisements.
Under this legislation, you will face a WHT rate of 5%. For non-residents, the rate will be 20%. However, the WHT is an advance tax, which means you still need to file returns and pay income tax.
Read Also: Twitter Content Monetization: What You Need to Know
The National Housing Development Fund, as stipulated in the Finance Act, establishes a compulsory housing levy designed to be jointly contributed by both employers and employees. This levy is set at 3% of the employee's gross salary.
To ensure compliance, the employer is responsible for remitting the combined 3% housing levy to the National Housing Development Fund by the 9th day of the subsequent month.
Read Also: President Ruto's Affordable Housing Prices & Payment Plan
The Finance Act introduces a provision to the effect that no deduction shall be allowed in respect of any expenditure or loss where the invoices are not generated from an electronic invoice management system (TIMs or e-TIMs) except where the transactions have been exempted per the Tax Procedures Act.
This provision empowers KRA to roll out an electronic tax invoice management system, which is likely to affect all taxpayers irrespective of their VAT status. More corporates and businesses will ask for TIMS/e-TIMS-compliant invoices from their suppliers and service providers.
The Finance Act replaced Section 86 of the TPA with a new penalty structure for noncompliance with electronic tax invoice issuance, electronic tax return submission, and electronic tax payment.
The penalty will equal two times the tax due. The previous penalty was Ksh100,000.
KRA describes Residential Rental income tax (MRI) as tax payable by resident persons (individual/company) on rental income earned for the use or occupation of a residential property.
Specifically, this applies to rental incomes ranging from Sh288,000 (Sh24,000 per month) to Sh15 million annually.
The Finance Act lowered the monthly residential rental income tax rate from 10% of the gross rental receipts to 7.5%. This will be a welcome change for landlords who will pay less tax on rental income starting 1st January 2024.
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The Finance Act allows the Commissioner to appoint Property management companies (in writing) as withholding tax agents. The Act requires all recipients of rental income on behalf of an owner to withhold and remit withholding tax to the Commissioner within five working days.
This change is aimed at curbing tax evasion by landlords and enhancing faster revenue collection from rental income.
The Finance Act introduces relief for resident individuals contributing to a post-retirement medical fund. The amount of post-retirement medical fund relief equals 15% of the contribution paid or Ksh60,000 per annum, whichever is lower. It comes into effect in January 2024.
Additionally, investment income from a post-retirement medical fund, whether or not the fund is part of a retirement benefits scheme, will be tax-exempt.
This provision aims to encourage individuals to take up post-retirement medical schemes to safeguard against increasing medical costs in their post-employment years.
Read Also: How Much Money Does a Kenyan Need to Retire at 45?
The Finance Act amended an Income Tax Act (ITA) provision requiring withholding tax to be remitted to the KRA by the 20th of the following month. Instead, the Act effectively requires withholding tax to be remitted to the Commissioner within five working days of being withheld.
The Finance Bill had proposed remitting withholding tax within 24 hours, but it was increased to five working days. To comply with the revised timelines, taxpayers will need to realign their supplier payment schedules.
The Finance Act introduced a 5% withholding tax on local sales promotion, marketing, and advertising services offered by resident persons.
Marketing, sales promotion, and advertisement services have remained out of the ambit of withholding tax due to a lack of clarity in the law. This introduction clarifies that such payments will be subject to WHT. Taxpayers will still be required to file returns and pay income tax, as WHT is considered advance tax.
The Finance Act introduced a preferential tax regime for qualifying intellectual property income. This includes royalties, capital gains, and any other income generated from the sale of an intellectual property asset.
The provision is aimed at encouraging the retention of intellectual property in Kenya. However, the Act does not specify the preferential tax rate for qualifying intellectual property income.
Club entrance and subscription fees paid by an 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.
The change is meant to incentivize companies to invest in the welfare of their human capital with the hope of carrying out business development through networking.
The Finance Act has deleted Section 15(7) (e) (iii), which provided that the gains or profits derived from the wife’s employment income are considered as a separate source of income.
The income of a married woman living with her husband will no longer be deemed to be income of the husband for the husband’s income tax purposes by deleting Section 45 of the Income Tax Act.
Following the Voluntary Tax Disclosure Program (VTDP) introduced by the Finance Act 2020 covering the five years prior to 1st July 2020, the Act has introduced a new Section 37E to the TPA, which refrains the Commissioner from collecting any penalties, interest, or tax debt where a person had paid all the principal taxes by 31st December 2022.
Following the enactment of the Finance Act, a full waiver of penalties and interest will be granted for all principal taxes paid by 31st December 2022. However, the Act has excluded any tax avoidance penalties and interest incurred by taxpayers from the amnesty.
The waiver will only apply to penalties and interest on unpaid principal tax up to 31st December 2022 with the condition that such unpaid principal tax is paid on or before 30th June 2024.
The Act has amended Section 47 of the Tax Procedures Act (TPA) to allow overpaid taxes to be utilized in offsetting both outstanding tax debts and future tax liabilities. Before this, overpaid taxes were only used to offset future tax liabilities.
With this change, when you make an application for a refund of overpaid taxes, the Commissioner will be required to refund the cash within six months from the date of ascertainment of the refund, failure to which the overpaid tax shall be applied to offset your outstanding tax debt or future tax liabilities.
Previously, the Act required KRA to refund overpaid taxes within two years from the date of application failure. Further, the Act has increased the timelines for KRA to determine a refund application from the current 90 days to 120 days for refunds undergoing audits,
Read Also: Everything You Need to Know About Tax Refunds in Kenya
The Act replaces subsection (4B) of Section 42A of the Tax Procedure Act (TPA) with a new subsection requiring withheld VAT to be remitted to KRA within five days after the deduction.
Before this change, appointed VAT withholding agents had to remit the tax by the 20th day of the following month. Additionally, the Finance Act has amended Section 42 (A) of the TPA to align offenses related to withholding VAT where one fails to remit withheld VAT within five working days after the deduction.
The Finance Act amended the advance tax payable on passenger and commercial vehicles.
The advance tax for Commercial vehicles (vans, pickups, trucks, prime movers, trailers, lorries excluding tractors or trailers used for agricultural purposes) will be revised from the higher of Ksh1,500 per tonne of load capacity per year or Ksh2,400 per year to the higher of Ksh2,500 per tonne of load capacity per year or Ksh5,000 per year.
The advance tax with respect to saloons, station wagons, minibusses, buses, and coaches will be revised from the higher of Ksh60 per passenger capacity per month or Ksh2,400 per year to the higher of Ksh100 per passenger capacity per month or Ksh5,000 per year.
The Finance Act introduces the Taxation of income from registered trusts for beneficiaries.
Any amount received by a beneficiary from a trust or paid out from a trust on behalf of a beneficiary shall be deemed taxable income in so far as the amount is received/paid out from income that is ordinarily subject to income tax.
Before the Act, only the following incomes of a registered trust were subject to income tax from 1st July 2021:
The Finance Act deleted section 5 (2) (aa) of the VAT Act, effectively increasing petroleum products (excluding Liquid Petroleum Gas) VAT to the standard rate of 16%. The preferential rate of 8% on petroleum products was introduced in 2018 to caution Kenyans from rising fuel prices. The reinstatement of the 16% rate had a different effect.
The Finance Act has also amended the Second Schedule to the VAT Act to zero-rate Liquified Petroleum Gas (LPG). LPG previously attracted 8% VAT. This move reduced the cost of LPG and is in line with the government plan to encourage the use of clean energy.
Car import duty was increased by 10% to 35% after the East African Community (EAC) approved an application by Kenya to raise duty on motor vehicles under the common external tariff.
According to Robert Waruiru, the chairperson of the Institute of Certified Public Accountants of Kenya Public Finance Committee, the increase in customs duty on imported cars will translate to about a 14 percent increase in the cost of importing vehicles.
Read Also: How the Price of New Cars Will Change as Import Duty Increases From 25 to 35%
As the new year approaches, take time to evaluate how the new laws will impact your personal or business finances. Consider the potential effects on your income, taxes, investments, and other financial aspects. If you have financial plans in place, review them in light of the new laws. Ensure that your plans are still effective and make adjustments if necessary.
Finally, ensure that you comply with the new laws. This may involve changing your financial practices, reporting requirements, or adapting other aspects of your financial activities.
Sources:
Key Highlights of the Finance Act 2023 - KRA
Kenya enacts tax changes under Finance Act, 2023 | EY - Global
Finance Bill, 2023: An analysis of the major tax proposals - Cliffe Dekker Hofmeyr
KPMG Finance Bill, 2023 Analysis
Analysis of the Kenya Finance Act 2023 - B M Musau & Company, Advocates LLP
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