The government has announced its intention to reinstate certain tax measures that were previously eliminated from the contentious Finance Bill 2024, which was withdrawn in response to significant public backlash.
The Ministry of Treasury plans to consolidate these tax measures into three new legislative proposals: the Tax Laws (Amendment) Bill, 2024; the Tax Procedures (Amendment) Bill, 2024; and the Public Finance Management (Amendment) Bill, 2024, which will be presented to Parliament.
In contrast to previous instances where the government introduced bills with minimal publicity, the Treasury has now published a two-page explanatory document in local newspapers to clarify the new proposals.
This approach is perceived as a lesson learned from the Finance Bill 2024, which the government claimed would benefit Kenyans but faced opposition due to widespread misinformation.
However, this initiative may provoke further public discontent, as the introduction of new taxes could exacerbate the financial strain on a population already grappling with a high cost of living.
Treasury Cabinet Secretary John Mbadi stated that the new bills are designed to stimulate economic growth and help address the fiscal deficit through improved revenue collection.
Following the withdrawal of the Finance Bill 2024, the government projected a deficit of Ksh 346 billion.
Here are some of the tax measures that are making a comeback.
Expand the digital marketplace
The Tax Laws (Amendment) Bill, 2024, similar to the Finance Bill, aims to modify Section 3 of the Income Tax Act to expand the tax bracket to encompass additional digital operators.
This expansion will now cover ride-hailing services, food delivery services, professional services, freelance services, and rental services.
“This proposal is to expand the tax base by bringing the income of the owners of the digital platforms that offer the above services into the tax net,” the bill reads in part.
Minimum top up tax
The Tax Laws (Amendment) Bill, 2024 aims to implement a minimum top-up tax.
This initiative is designed to ensure that multinational corporations operating within Kenya are subject to a minimum tax rate of 15 percent.
However, this requirement applies only to those multinational companies that have a consolidated annual turnover of Ksh 100 billion.
Additionally, the monthly pension contributions are set to rise to Ksh 30,000.
The annual limit for pension contributions will be increased from Ksh 240,000 to Ksh 360,000, resulting in a monthly contribution of Ksh 30,000 from both the employee and the employer.
Introduction of withholding tax on goods supplied to public entities
The bill will also introduce a withholding tax on goods supplied to a public entity (such as a government office) at a rate of 0.5 per cent to a resident person and 5 per cent for non-resident.
The rates are, however, different from the repealed Finance Bill 2024, as it proposed a 3 per cent for resident persons.
This means that if a resident individual sells goods worth Ksh 100,000, they will pay Ksh 500 as tax.
0n the other hand, a non-resident individual selling the same amount will remit Ksh 5,000.
Economic presence tax
The bill further seeks to introduce the Significant Economic Presence Tax that will be subjected to non-resident people who earn an income from the digital marketplace.
It will seek to replace the Digital Service Tax whose previous rate was 1.5 per cent. Now, digital operators will pay a tax rate of 6 per cent.
According to Mbadi, the taxation of digital services will align with international best practices.
Infrastructure bonds to be taxable
In the past, infrastructure bonds have attracted interest from investors due to their tax-free status.
In the repealed Finance Bill, the government proposed to tax the interest earned from infrastructure bonds for resident persons as foreigners would continue to be exempt.
The new bill, however, proposes a 5 per cent tax rate from interest accrued from infrastructure bonds.
Make KRA PIN mandatory for Kenyans working remotely
A provision from the previously repealed Finance Bill that is anticipated to be reinstated is the obligatory requirement for a KRA PIN for Kenyans engaged in remote work.
The Draft Tax Procedures (Amendment) Bill, 2024, stipulates that this requirement is applicable to all employees who are working remotely outside of Kenya for an employer based in Kenya.
Affordable housing, SHIF tax deductible
Contributions to the Housing Levy and the Social Health Insurance Fund (SHIF) will become tax-deductible if the Tax Laws (Amendment) Bill, 2024 is enacted.
This new legislation will allow Kenyans to benefit from insurance reliefs associated with these contributions, thereby decreasing the taxable portion of their income.
