Finance Bill 2024: Full Statement Announcing Amendments at State House PG

EDITOR'S NOTE: President William Ruto on Tuesday, June 18, hosted the Kenya Kwanza Parliamentary Group meeting at State House. The PG ended with a resolution to amend the Finance Act of 2024 and scrap off unpopular sections in line with the public sentiments. Here is the full statement announcing the changes, as read by Molo MP Kimani Kuria - who chairs the National Assembly's Finance Committee:

1. The Finance Bill 2024 aims to generate an additional Ksh302 billion in revenue, which is intended to bolster the projected total revenues for the year to Ksh3.3432 trillion.
2. To enhance revenue collections, the Committee proposes revising the commencement date in certain clauses in the Bill from 1 September 2024 to 1 August 2024.
   • This will enhance the early collection of revenues
3. The Committee notes that not all creative works generate income and therefore, it is necessary to specify that only those that generate income are subject to the tax.
   • This is to provide clarity on which creative works are subjected to tax
4. The Committee notes that the distribution of software cannot be considered as an activity that would generate a royalty. Therefore, the Committee proposed to delete the words in subclause (b) “and include distribution of the software” in line with International Best Practices.
   • This amendment was to align the clause to the International Best Practices where distribution of software is considered royalty
5. The Committee observes that grants are not necessarily taxable and therefore, expanding the definition of donations to include grants will not be prejudicial.
   • This is to clean the definition of donation to include grants

6. The Committee supports the proposal to retain the period where business are allowed to recover foreign exchange losses at 5 years instead of the proposed 3 years
   • The Bill is to cushion business on losses
7. The Committee deletes an amendment that sought to exclude public officers from taxation of their employment benefits in the form of reimbursements by the employer for assets acquired.
   • This clause would discriminate against private sector employees and has the potential of abuse hence the deletion
8. The Committee notes that the profit margin for digital services providers is usually higher because such providers do not incur large expenses compared to companies with physical presence. Therefore, for the purpose of the increase is to align the deemed profit with what would have been the profit if the companies were not enjoying the lower production cost. Nevertheless, the Committee proposed to reduce the rate of deemed income from 20% to 10% of gross turnover.
   • This is a revenue enhancement measure to ensure that digital service providers pay their share of taxes
9. The Committee supported the introduction of a top-up tax. This is a global tax that has been adopted in over 60 countries for which some of the key multinational companies have presence. Therefore, not having it in Kenya will jeopardize the mechanism for application of the tax even though a constituent company located in Kenya could end up underpaying its share of revenues.
10. ‍
11. In relation to the Motor vehicles tax, as provided in Clause 9(12H), the Committee notes:
    • That section 3(2) of the Income Tax Act defines what constitutes an income upon which tax is chargeable under the Act, whereas the proposed Motor Vehicle Tax is levied on an asset and not income within the definition.
    • The proposal to Cap the levy at one hundred thousand shillings makes the tax discriminatory and non-progressive.
    • The proposal will have adverse effects on the insurance-taking behavior of motor vehicle owners and further lead to negative effects on the insurance sector.
    • The commercial vehicles are subject to advance tax and therefore imposing this tax will amount to double taxation.
    • From the foregoing, the Committee recommends the deletion of the proposed Motor vehicle tax.
12. The Bill proposes to limit the deductibility of an employee's contributions to a post-retirement medical fund to ten thousand shillings. However, the Committee recommends increasing the limit to fifteen thousand shillings.
    • This is to encourage a saving culture for a post-retirement medical scheme.
13. The Committee supports the proposal on an advance pricing agreement since it will enhance revenue determination in entities that belong to Multinational Groups or trade with related persons. Further, to allow for seamless implementation of the Agreements, the Committee recommends enactment of the regulations to address circumstances where KRA cancels the APAs to allow the taxpayer the right of appeal, among other concerns.
    • This proposed clause is to align our tax laws to the international best practices and prevent profit shifting and base erosion
14. The Committee notes that the proposal seeks to make “amateur sporting associations” taxable; however, to support investments in this sector, the Committee recommends certain exemptions to encourage growth and development.