The Finance Bill 2024, introduced to the National Assembly on May 9, 2024, proposes several key changes to Kenya’s tax laws. The bill aims to widen the tax base and meet projected budget revenues for the 2024/2025 financial year. However, the proposed changes have been met with significant opposition from the majority of Kenyans.
Key Changes in the Finance Bill 2024
Income Tax.
Significant Economic Presence Tax (SEPT): The bill replaces the Digital Service Tax (DST) with SEPT, effective January 1, 2025.
Definition of “Digital Content Monetization”. The definition is expanded to include more services.
Tax-Deductible Contributions. Contributions to individual retirement funds, pension funds, and provident funds are made tax-deductible up to KES 360,000 per annum.
Tax-Exempt Portion of Employee Per Diems. The tax-exempt portion is limited to no more than 5% of monthly gross earnings.
Value Added Tax (VAT).
VAT Registration Threshold. The threshold for mandatory VAT registration is increased from KES 5,000,000 to KES 8,000,000 per annum.
Exemptions. The bill repeals VAT exemptions for the tourism, manufacturing, and construction sectors.
New VAT Services. The following financial services are subject to VAT at the standard rate of 16%.
- Issuing credit and debit cards
- Telegraphic money transfer services
- Foreign exchange transactions
- Cheque handling, processing, clearing, and settlement
- Issuance of securities for money
- Assignment of debt for consideration
- Provision of financial services on a commission basis
Excise Duty.
The bill proposes the repeal of the relief for excise duty paid on raw materials used in manufacturing other excisable goods. This implies that the excise duty paid on raw materials becomes an extra cost, ultimately increasing the ex-factory selling price of the excisable product.
The Bill expands the scope of excisable services to include services offered in Kenya by nonresident persons through a digital platform. Services offered through a digital platform are currently charged VAT at 16% and Digital Services Tax at 1.5%.
The Bill proposes the extension of the timeframe for licensed manufacturers of alcoholic beverages to pay excise duty from 24 hours to 5 working days upon removal of goods from the stockroom. This will reduce on the administrative burden of daily management of tax payments.
Other Changes.
Motor Vehicle Tax. A new Motor Vehicle Tax of 2.5% of the vehicle value is introduced, subject to a minimum of KES 5,000 and a maximum of KES 100,000.
Eco Levy. The bill introduces an “Eco Levy” on environmentally unfriendly products.
Public Opinion and Rejection
The proposed changes have been met with significant opposition from the majority of Kenyans. An opinion poll conducted by Infotrak between May 25 and May 29, 2024, found that:
77% of Kenyans believe the Finance Bill 2024 will not have a positive impact on the economy.
87% are opposed to the introduction of a 16% VAT on bread.
86% are opposed to the introduction of VAT services on financial transactions such as M-PESA.
81% are opposed to the introduction of a 2.5% tax on the value of motor vehicles.
83% are opposed to the additional levy on environmentally unfriendly products.
The poll also found that 63% of Kenyans believe the country is headed in the wrong direction, citing the skyrocketing cost of living (45%) and unemployment as major concerns.
The Finance Bill 2024 has been met with widespread opposition from Kenyans due to the introduction of new taxes and the perceived negative impact on the economy. The bill aims to widen the tax base and meet projected budget revenues, but the proposed changes have been criticized for being punitive and overburdening citizens.
