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?

The second change is the requirement for Government of Kenya (GOK) employees to pay tax per diem. This means that GOK employees will no longer receive tax-free allowances for their travels. This move is expected to increase revenue for the government, but it may also discourage public servants from accepting positions that require frequent travel. This is a counterproductive move. Shows just how desperate the government is for money which is eventually going to be looted.

The third change is the taxation of “paid partnerships” on Instagram and brand ambassador roles. These individuals will now be required to pay taxes on their earnings. While this change will increase revenue for the government, it may discourage influencers and brand ambassadors from accepting deals in Kenya, resulting in a loss of potential revenue for the country.

Back to my point, what has the government done to grow this sector now that they want to tax it to death? How old is the sector for it to even be taxed? Has the government done proper due diligence on this sector to recommend this? This shows the ineptitude of a government that is not willing to research and create the right environment for the growth of these sectors. This is just disappointing.

The fourth change is the increase in the PAYE rates for individuals earning over Kshs. 500,000 per month. Their marginal PAYE tax rate has moved from 30% to 35%. This move will increase revenue for the government, but it will also reduce the disposable income of these high-income earners, leading to a potential reduction in consumer spending.

The fifth change is the introduction of a 5% withholding tax on marketing services and a 15% withholding tax on digital content monetization. This change is expected to increase revenue for the government, but it may discourage the growth of the digital marketing industry in Kenya. This will kill the sector. Whoever is thinking of these proposals has no clue what is happening in the market sector.

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The sixth change is the requirement for the daily payment of excise duty by betting companies. This change is expected to increase revenue for the government, but it may discourage the growth of the betting industry in Kenya. Do we have sufficient infrastructure to handle this? To address the issues and challenges that will arise from this?

The seventh change is the requirement for taxpayers who dispute a tax assessment by the Kenya Revenue Authority (KRA) and appeal to the Tax Appeals Tribunal to deposit 25% of the disputed tax. This move will discourage taxpayers from appealing their tax assessments and may reduce the chances of a fair hearing and this will create a toxic environment hence more chances of corruption.

The eighth change is the exemption of LPG and fertilizer inputs from VAT. This move is expected to reduce the cost of these inputs for farmers and increase agricultural productivity. This is commendable but a tiny drop in the ocean of needs for Kenyans.

Overall, the Kenyan Finance Bill 2023 will have only one positive aspect and a myriad of negative impacts on the Kenyan economy and citizens. While it will increase revenue for the government, it WILL  discourage investment and growth in key industries that are currently offering employment to millions of youth. The increase in PAYE rates for high-income earners may reduce consumer spending, and the requirement for taxpayers to deposit 25% of disputed tax may discourage taxpayers from appealing their tax assessments.

Way Forward;

To mitigate the potential negative impacts of the Kenyan Finance Bill 2023, the government could consider implementing measures to support the growth of affected industries, such as the crypto and digital marketing industries first. Remove the proposals, grow and nurture the sectors, and fatten them up first before milking them.  Additionally, the government could consider increasing tax compliance by reducing the tax burden for low-income earners and increasing tax enforcement on high-income earners and companies.

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Furthermore, the Kenyan Finance Bill 2023 is a complex piece of legislation with far-reaching implications and the majority of Kenyans (97%) have no idea what the Finance Bill means, does, or how it is passed and this lack of awareness is the greatest challenge.  While one proposal will benefit the economy and citizens, the rest will have negative unintended consequences that will definitely harm the growth and development of the economy and the people of Kenya. It will be essential for the government to collect the views of the public first on the impact of the new proposed tax measures and adjust them as needed to promote economic growth and development.

One KEY concern is the impact of the increased tax burden on businesses and individuals that are already burdened. For example, the introduction of a withholding tax on digital content monetization will definitely hamper the creation and distribution of digital content. This will have a negative impact on the creative economy, which has been a growing sector in Kenya in recent years.

Another concern is the impact of the increased tax burden on low-income earners. While the exemption of LPG and fertilizer inputs from VAT is a positive step for farmers, low-income earners may still struggle to meet their basic needs, particularly given the current economic climate.

To address these concerns, the government should consider implementing targeted tax breaks for businesses and individuals in specific sectors. For example, the government could offer tax incentives for companies that invest in digital infrastructure or provide training for digital skills. Additionally, the government could consider expanding social safety nets, such as cash transfers, to help low-income earners cope with the increased tax burden.

It is essential for the government to ensure that before these proposed new tax measures are implemented, they are adequately discussed by the public across the country. The government should also consider engaging with stakeholders, such as businesses and civil society organizations, to gather feedback on these proposals first before they are even tabled in Parliament for debate.  This is wrong, this is just pure robbery sanctioned by the law, and approved by greedy and corrupt Legislators. This is a signal that Winter Solstice for Kenya is nigh.

In conclusion, the Kenyan Finance Bill 2023 is purely about increasing revenue for the government and ensuring that the Kenyan People suffer to the maximum. The government is not factoring in, the negative impact of the new proposed tax measures on businesses and individuals, particularly low-income earners. By implementing targeted tax breaks and expanding social safety nets, the government can help mitigate the potential negative impacts of the new tax measures and promote inclusive growth and development. But are they thinking? Or they are too greedy to even process the damage they are about to cause.

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