The Finance Bill, 2017 published on 3rd April 2017 amended various tax provisions while at the same time providing clarity on the existing provisions.
The Finance Bill 2017 followed the release of the 2017/2018 Budget Speech, which was announced on 30th March 2017.
The Bill incorporates new provisions in the tax law and amendments to the various provisions in the various Acts.
Below are the changes that will be effective from 1st January 2018:
New provisions introduced by the Finance Act Petroleum industry capital expenditure incurred on the construction of transportation and storage facilities for petroleum products by the Kenya Pipeline Company Limited (KPC) will now qualify for investment deduction at either 150 percent or 100 percent.
Currently, the petroleum pipeline is eligible for wear and tear allowance at 12.5 percent.
Inflation has been on the rise and this has had a significant impact on food prices. To cushion lower income earners against the spiraling cost of living, the Government has proposed to further review the current income tax brackets which were expanded by 10 percent in 2016.
In addition to expanding the tax bands by another 10 percent, the Government has also proposed to further increase the personal relief by 10 percent from the current KES 15,360 per annum (KES 1,280 per month) to KES 16,896 (KES 1,408 per
With the expansion of the tax bands by 10 percent, the lowest taxable income for low income earners will rise from KES 11,180 per month to KES 12,298 per month. This is expected to cushion low income employees from the high cost of living.
Special Economic Zones (SEZ’s)
The Finance Act has introduced 150 percent Investment Deduction allowance for capital expenditure on buildings and machinery by an SEZ enterprise located outside Nairobi and Mombasa.
This change harmonizes the investment deduction allowance granted on qualifying
capital expenditure incurred outside the Nairobi and Mombasa counties.
Local motor vehicle assemblers
The Finance Bill introduced a reduced corporate tax rate of 15 percent for companies whose business is the local assembly of motor vehicles for the first five years from the year they commence operations.
The Finance Act included a provision stating that the 15 percent rate shall be extended for a further period of five years if the company achieves a local content equivalent to 50 percent of the ex-factory value of the motor vehicles. No definition of the term “local content” has been provided.
Tax Amnesty on income earned outside Kenya
The Finance Bill extended the tax amnesty deadline by which income earned outside Kenya needs to be declared to 30th June 2018.
The Act clarified that where no funds have been transferred within the period of the amnesty (period up to 30 June 2018) there shall be a five year period for remittance but a penalty of 10 percent shall be levied on the remittance.
Betting, Lotteries and Gaming Act
The increased tax rate for betting, gaming and lottery operators The Finance Act has increased the amount of betting, lotteries and gaming taxes with effect from 1st January 2018 as follows:
However, in June, President Uhuru Kenyatta refused to assent to Finance Bill 2017 over parliament’s deletion to clause raising betting tax to 50 percent from 15 percent.
The purpose of Amendment of Section 59 B of Cap 469 was to “discourage Kenyans, and especially the youth, in directing their focus on betting, lottery and gaming activities instead of productive economic engagement, a vice that is likely to degenerate into a social disaster.”
Currently, they are taxed at 5 percent, betting firms – bookmakers – at 7.5 percent, casino gambling at 12 percent and competitions like raffles at 15 percent.