Treasury's Rain of Taxes & Mergers in Kenya's Banking Sector - News Round-Up

𝐖𝐞𝐥𝐜𝐨𝐦𝐞 𝐭𝐨 𝐭𝐨𝐝𝐚𝐲’𝐬 𝐦𝐨𝐧𝐞𝐲 𝐧𝐞𝐰𝐬 𝐫𝐨𝐮𝐧𝐝 𝐮𝐩:

𝐌𝐨𝐧𝐝𝐚𝐲, 𝐍𝐨𝐯𝐞𝐦𝐛𝐞𝐫 𝟒, 𝟐𝟎𝟐𝟒‍

Today, much of the conversation centres around the National Treasury’s proposed changes to the tax regime through the Business Laws Amendment Bill 2024, the Tax Laws (Amendment) Bill 2024, the Tax Procedures (Amendment) Bill 2024, and the Public Finance (Amendment) Bill 2024. 

The proposed laws have drawn controversy as they contain many of the proposals that were in the Finance Bill 2024, which was ultimately rejected and all its clauses deleted. Let's dive in:

𝐈𝐧𝐜𝐨𝐦𝐞 𝐓𝐚𝐱 𝐀𝐦𝐞𝐧𝐝𝐦𝐞𝐧𝐭 𝐚𝐧𝐝 𝐄𝐦𝐩𝐥𝐨𝐲𝐞𝐞 𝐃𝐞𝐝𝐮𝐜𝐭𝐢𝐨𝐧𝐬

The Business Daily reported on the National Treasury's proposal to make amendments to the Income Tax to have deductions intended for the SHIF and the Housing Levy deducted to the employee's gross salary before their taxable pay is calculated. At the moment, the taxable pay is calculated before the deductions are factored in - but a tax relief equivalent to 15% of the SHIF and housing levy is later applied. The current situation has seen many workers complain of declining net incomes and the Treasury says it hopes the new tax structure will increase disposable incomes. The net pay for a taxpayer earning Ksh100,000 will increase by about Ksh637. 

𝐖𝐨𝐫𝐥𝐝 𝐁𝐚𝐧𝐤'𝐬 𝐖𝐚𝐫𝐧𝐢𝐧𝐠 𝐨𝐧 𝐄𝐥𝐞𝐜𝐭𝐫𝐢𝐜𝐢𝐭𝐲 𝐌𝐚𝐫𝐤𝐞𝐭 𝐂𝐡𝐚𝐧𝐠𝐞𝐬

The Business Daily has also written on the World Bank’s caution to the Kenyan government, warning against plans to end Kenya Power's monopoly on electricity sales to homes and businesses. The World Bank warns that introducing competition in the electricity market could lead to a significant increase in electricity prices for consumers. Read here.

𝐏𝐨𝐭𝐞𝐧𝐭𝐢𝐚𝐥 𝐌𝐞𝐫𝐠𝐞𝐫𝐬 𝐀𝐦𝐨𝐧𝐠 𝐊𝐞𝐧𝐲𝐚𝐧 𝐂𝐨𝐦𝐦𝐞𝐫𝐜𝐢𝐚𝐥 𝐁𝐚𝐧𝐤𝐬

A report from The Standard shows that more than half of commercial banks in Kenya may have to merge or be bought out due to proposed regulations by the Central Bank of Kenya (CBK). The new rules, part of the Business Laws (Amendment) Act, would increase the minimum core capital requirement from Sh1 billion to Sh10 billion by 2027. This change mainly affects smaller banks, known as tier two and tier three banks. As of December 2022, only 15 out of 39 banks in Kenya met the current Sh1 billion requirement, meaning many could find it hard to meet the new rules. The CBK said that raising the capital requirement is meant to help banks manage increasing risks, like cybersecurity threats and climate change, especially as non-performing loans rise and competition from fintech companies grows. 

The Standard has also written an Op-ED by Treasury PS Chris Kiptoo, advocating for the raft of proposals seeking to change Kenya’s tax regime.Read more on this here: 

𝐒𝐢𝐠𝐧𝐢𝐟𝐢𝐜𝐚𝐧𝐭 𝐄𝐜𝐨𝐧𝐨𝐦𝐢𝐜 𝐏𝐫𝐞𝐬𝐞𝐧𝐜𝐞 𝐓𝐚𝐱 𝐟𝐨𝐫 𝐃𝐢𝐠𝐢𝐭𝐚𝐥 𝐅𝐢𝐫𝐦𝐬

Capital Business has written on the Treasury’s proposal  to introduce a 6% Significant Economic Presence Tax (SEPT) for digital firms in Kenya, replacing the current 1.5% Digital Service Tax (DST). This tax will apply to non-resident companies earning income through Kenyan digital marketplaces. Treasury Cabinet Secretary John Mbadi stated that the SEPT aims to ensure fair contributions from foreign companies benefiting from the Kenyan economy. 

DST was introduced in January 2021 to tax income from digital marketplaces, affecting both Kenyan and foreign individuals and companies. The increase of the tax payable by such companies will affect taxpayers who interact with platforms such as Airbnb (both hosts and travellers), content creators on YouTube, publishers who earn from Google, the cost of streaming services such as Netflix, among others. 

𝐒𝐭𝐚𝐫𝐥𝐢𝐧𝐤 𝐒𝐮𝐬𝐩𝐞𝐧𝐝𝐬 𝐍𝐞𝐰 𝐒𝐮𝐛𝐬𝐜𝐫𝐢𝐩𝐭𝐢𝐨𝐧𝐬 𝐃𝐮𝐞 𝐭𝐨 𝐍𝐞𝐭𝐰𝐨𝐫𝐤 𝐎𝐯𝐞𝐫𝐥𝐨𝐚𝐝

Starlink has suspended new subscriptions for its internet services in Nairobi and surrounding areas due to network overload. Users have complained about issues accessing residential, business, and roaming plans, prompting the company to announce it has reached capacity and cannot support additional customers for now. Areas like Nairobi, Thika, Kajiado, and parts of Murang'a are currently sold out for residential services, and no roaming plans are available. 

𝐏𝐚𝐫𝐥𝐢𝐚𝐦𝐞𝐧𝐭𝐚𝐫𝐲 𝐁𝐮𝐝𝐠𝐞𝐭 𝐎𝐟𝐟𝐢𝐜𝐞'𝐬 𝐂𝐚𝐮𝐭𝐢𝐨𝐧 𝐨𝐧 𝐈𝐧𝐜𝐫𝐞𝐚𝐬𝐞𝐝 𝐓𝐚𝐱𝐞𝐬

And lastly the  Parliamentary Budget Office (PBO) has warned the government that increasing taxes and levies on Kenyans will not necessarily lead to higher revenues according to Nation. This caution comes as the government has revived some unpopular taxes that were withdrawn following public protests in June. The PBO is an independent entity in Kenya that provides financial and economic analysis to Parliament, helping lawmakers understand the implications of budgetary policies and proposals.