Key highlights of Finance Bill 2024

Finance Bill 2024 has some pinches of sweeteners. [iStockphoto]

The Finance Bill 2024 is likely to face as much contest as its forerunner the Finance Bill 2023 due to the tax attack it proposes in both traditional and non-traditional tax revenue areas.

Despite looming opposition, the Finance Bill 2024 has some pinches of sweeteners which, understandably may not be appreciated by some.

The pinch of sweeteners include the proposal to increase travel (untaxed per diems / out-of-pocket expenses) from Sh2,000 per day to an amount not exceeding five per cent of one’s monthly income. The Bill does not clarify if this proposal will also apply to civil servants whose per diems (not taxed) have always been much higher.

Another set of sweeteners include (after a long-fought war), is the increase in tax-deductible contributions to a registered retirement plan from Sh20,000 per month to Sh30,000. And also, tax relief on the Housing Development Levy. Most of the remaining provisions in the Bill are the usual hard-ball tackle provisions, not so sweet in many ways as hereafter discussed.

Introduction of Motor Vehicle Tax at the rate of 2.5 per cent of the value of the motor vehicle which shall be determined on the basis of the make, model, engine capacity in cubic centimetres, and year of manufacture of the motor vehicle. It is a re-introduction of road licenses into the law through baptism.

Amounts paid or granted to public officers to reimburse them for expenses incurred during the performance of official duties shall not constitute taxable gains or profits chargeable to tax.

Digital Service Tax provision repealed and introduction of significant economic presence tax:

Keep Reading

The significant economic presence tax will be payable by a non-resident person whose income from the provision of services is derived from or accrued in Kenya through a business carried out over a digital marketplace at the rate of 30% of the deemed taxable profit. The deemed taxable profit will be twenty percent (20 per cent) of the gross turnover earned by the non-resident person.

What is significant economic presence has not been defined well in the bill and will cause a problem with its interpretation and application.

Introduction of Minimum top-up tax which is payable by a covered person where the combined effective tax rate in respect of that person for a year of income is less than fifteen percent (15 per cent): It is to be computed based on a complicated maths process which will only serve to increase rent seeking avenues / behaviors by unethical tax officers.

Registered trust schemes will be subject to tax

The Bill deletes the provision that currently exempts a registered trust scheme’s income from tax. To be taxed at the rate of 30 per cent if the proposal is adopted. The removal of the exemption may lead to a return of the popularity of offshore family trusts. The Kenya economy should not develop wealth only to give it away to other jurisdictions through offshore family trusts. The land, with value but not liquid- how will taxes be imposed in such a scenario?

Taxation of interest income earned from infrastructure bonds

The Bill proposes to subject to WHT (at the rate of 5%) the interest income earned by resident persons from all listed bonds, notes, and other similar securities used to raise funds for infrastructure and other social services. The Government may lose on this since many taxpayers may opt for other securities unless the interest rate on infrastructure bonds are sufficiently high to be attractive in net terms.

Requirement to deduct withholding tax regardless of the amount

The Bill proposes to subject to withholding tax all payments made to a resident person in respect to management or professional fees or with respect to a contractual fee without any regard to the gross amount payable. Currently, the requirement to deduct WHT only applies where the aggregate value of the fee paid in a month amounts to KES. 24,000 or more.

Not a welcome move as it may encourage underground economy as paying entities innovate around the provision. It will also hurt the hustler economy where the hustlers earn small amounts of fee here and there.

Value-added tax

Time of supply for exported goods - The Finance Bill proposes a new test to determine the time of supply of exported goods as being the time when the registered person is in possession of the required export confirmation documents.

The time of supply for exported goods is currently the earlier of (i) the date on which the goods are delivered, (ii) the date on which an invoice for the supply is issued or (iii) the date on which payment for the supply is received, in whole or part. What export confirmation is remains unclear.

Increase of mandatory threshold for registration of VAT from Sh5 million to Sh8 million. This is a welcome move that would support the hustler economy.

Timelines for issuance of objection decision

The Finance Bill proposes a provision that where a taxpayer fails to provide additional information required by KRA following lodging of a notice of objection or fails to provide the information within a specified period of time, then the objection shall be deemed disallowed. The Finance Bill also proposes to expand the timeframe for issuing objection decisions from the current 60 days to 90 days from the date of receipt of a valid notice of objection.

This is punitive since the officers may ask for information that is not even available, like they have done in the past, ask for new information one day before the deadline. Tax systems should not be designed in such a blatantly biased manner as against the taxpayer.

The Bill also proposes to exclude Saturday, Sunday, and public holidays from the period for submitting returns, payments or any other documents.

- The writer is Managing and Tax Partner at Crowe Erastus & Co. Certified Public Accountants