Kenyan Finance Bill 2023: A Painful Winter Is Coming For Kenyan Citizens And Businesses

According to the World Bank’s “Doing Business 2020” report, Kenya ranks 112th out of 190 countries in the ease of paying taxes. This ranking considers factors such as the number of taxes, time spent on tax compliance, and total tax rate.

In terms of the total tax rate, which includes all taxes and contributions that a medium-sized company must pay, Kenya ranks 120th out of 190 countries, according to the same report.

The total tax rate in Kenya is 34.2% of commercial profits, which is higher than the average for Sub-Saharan Africa (32.2%) but lower than the average for high-income OECD countries (40.4%).

The Kenyan Finance Bill 2023, which was recently drafted by the Kenyan Government, has elicited pained conversations amongst Kenyans from diverse walks of life.

These proposed changes to the Finance Act, ranging from the definition of digital assets to the increase in PAYE rates, will have a profound negative impact on both the economy and the lives of Kenyans. In this article, we will explore the different aspects of the Kenyan Finance Bill 2023 and its implications.

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Summary of the proposed taxes;

1. If you earn KES 500k+/month, Treasury is proposing that your PAYE be graduated to 35.0%. This is a proposal to amend the 3rd schedule of the Income Tax Act.
2. Treasury is proposing a 3.0% deduction of one’s basic salary towards the National Housing Development Fund matched by another 3.0% from the employer. There are 4 exit routes after 7 years or upon retirement whichever comes first.
3. Through amendment of the Income Tax Act, the National Treasury is proposing that the turnover tax be revised from the present 1.0% to 3.0%. More importantly, it wants the band eligible for turnover tax changed from Kes 1M – 50M to Kes 500,000 – Kes 15M.
4. The National Treasury proposes to do away with the annual inflation adjustment of excise tax by repealing Section 10 of the Excise Duty Act, this is indeed a much-needed relief. This has been quite a debate for a while.
5. Treasury is proposing to have the requirement that betting firms remit excise taxes to KRA within 24 hours be anchored in law. This addresses the issue of anyone who has been banking on the ‘we have until the 20th’ window to catch a breather. Compliance with this will be interesting.
6. Treasury is proposing that KRA be empowered to have the powers to require taxpayers IN ANY SECTOR to remit excise duty collected on certain excisable services within 24 hours.
7. here’s a proposal to have anyone advancing a tax dispute to the Tax Appeals Tribunal deposit 20.0% of the disputed amount, or any security equivalent to the same amount, with the Commissioner.
8. Digital content creators have finally been reached. The 3rd Schedule of the Income Tax ropes payments relating to digital content monetization into the withholding tax ambit at a rate of 15%
9. The introduction of Digital Assets Tax targets anyone who owns a platform or facilitates the exchange or transfer of digital assets. Treasury’s list of digital assets includes cryptocurrencies, token codes, non-fungible tokens,s or any other token of similar nature
10. LPG and fertilizer inputs are now VAT exempt
11. Marketing services are now subject to a 5% withholding tax while digital content monetization is subject to a 15% withholding tax
12. GOK employees are to pay tax on per diem

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Just from reading the above summary, it is very evident that indeed a financial winter is coming fast and furious for Kenyans and Kenyan businesses.

The first change brought about by the Kenyan Finance Bill 2023 is the definition of Bitcoin and NFTs as digital assets that are subject to tax. The sale of these assets is now subject to a tax rate of 3%. This is a significant change since previously, these assets were not taxed in Kenya.

While this change will increase revenue for the government, it may discourage the growth of the crypto industry in Kenya. Some individuals may choose to invest in other countries with more favorable tax regimes. This is a wrong proposal that is going to kill a sector that has not started walking, has not been given the opportunity to grow, regulate, and then be taxed.

We cannot skip the growth and regulation bit because this will define how you tax the sector the taxation levied must be in tandem with the service given by the government in return to help the sector grow. How do you tax a sector that even has no single regulatory aspect? Shouldn’t taxes be based on the value of the taxed item and how the government is supporting the item’s growth and hence the need for the tax?