Highlights of the Kenyan Finance Act 2023

Income Tax Act

Amendments to Taxation of Employment Income:

Excludes payments for official duty travel based on approved mileage rates from taxation as gains from employment.
Club entrance and subscription fees paid by employers are treated as taxable benefits for employees.
Clarifies that the market value of shares for taxation purposes is determined when the employee exercises the option.
Allows for the deferral of taxation on shares allocated to employees instead of cash emoluments.
Effective Date: 1st July, 2023

Taxation of Repatriated Income for Non-residents:

Introduces a 15% tax on repatriated income for non-residents with a permanent establishment in Kenya and reduces the Corporate Income Tax (CIT) rate to 30% from 37.5%.
Effective Date: 1st January, 2024

Turnover Tax:

Lowers the upper threshold for turnover tax to KShs 25 million and increases the rate to 3%.
Effective Date: 1st July, 2023

Cryptocurrencies:

Introduces a 3% tax on income derived from the transfer or exchange of digital assets, including cryptocurrency transactions.
Effective Date: 1st September, 2023

Interest on Mortgages:

Individuals can claim mortgage interest expense deductions up to Kshs 300,000 per year for money borrowed from a co-operative society.
Effective Date: 1st January, 2024

Filing of Income Tax Returns:

Invoices generated from electronic tax invoicing management (e-TIMS) are required for deductibility of any expenditure or loss.
Effective Date: 1st January, 2024

Withholding Tax Changes:

Introduces withholding tax on various payments, including sales promotion, marketing, advertising services, digital content monetization, and rental income.
Specifies new withholding tax due dates, requiring remittance within 5 working days after deduction.
Effective Date: 1st July, 2023

Exempted Items from Tax:

Certain items, including royalties & interest paid to non-residents by vaccine manufacturers and income from post-retirement medical funds, are exempt from tax.
Gains on property transfers within special economic zones and various fees paid by special economic zone entities to non-resident persons are also exempt.

Effective Date: 1st January, 2023

New Individual Tax Rates for Pay As You Earn (PAYE):

Introduces individual tax rates of 32.5% and 35% for employment income exceeding KES 6,000,000.
Effective Date: 1st July, 2023

Corporate Income Tax on Vaccines:

Introduces a 10% CIT rate for companies manufacturing human vaccines.
Effective Date: 1st January, 2024

Withholding Tax on Immovable Property:

Reduces withholding tax on payments for the use of immovable property from 10% to 7.5%.
Effective Date: 1st January, 2024

Advance Tax Rate Changes:

Adjusts advance tax rates for various categories of vehicles and transportation.
Effective Date: 1st January, 2024

Rental Income Tax:

Reduces the Residential Rental Income tax rate from 10% to 7.5%.
Effective Date: 1st January, 2024

Digital Content Monetization:

Subjects digital content monetization to withholding tax at 5% for residents and 20% for non-residents without a permanent establishment in Kenya.
Effective Date: 1st July, 2023

VAT ACT 2013

VAT on Petroleum Products:

Standardizes VAT on petroleum products at a rate of 16%.
VAT Exemptions and Zero-Rated Supplies:

Removes VAT on liquefied petroleum gas (LPG).
Requires suppliers of imported digital services to register for VAT.
Introduces various exemptions and zero-rated supplies, including exports of taxable services and specific goods.
Effective Date: 1st July, 2023

Excise Duty Act 2015

Excise Duty Rate Adjustments:

Adjusts excise duty rates on various imported goods and services, including glass bottles, alkyd, unsaturated polyester, and more.
Increases excise duty on betting, gaming, prize competition, and lottery activities.
Tax Procedures Act 2015

Amnesty on Interest and Penalties:

Introduces an amnesty on interest and penalties for principal tax due before December 31, 2022.

Offset or Refund of Overpaid Tax:

Taxpayers can utilize overpayments for outstanding debts.
Refund of overpaid tax to be processed within 6 months.
Sets a timeline for the Commissioner to ascertain and determine applications subject to audit.
Settlement of Disputes:

Extends the period for settlement of disputes out of Court or Tribunal to 120 days.
Administrative Penalty:

Imposes administrative penalties for non-compliance with e-TIMS.
Effective Date: 1st July, 2023

Miscellaneous Fees and Levies Act

IDF and RDL Rate Changes:

Reduces IDF rate from 3.5% to 2.5% and RDL rate from 2% to 1.5%.
Introduces the export and investment promotion levy at rates of 17.5% or 10% depending on the item.
Expands exemptions from IDF and RDL for various categories of goods.
Adds new exemptions for goods used by international organizations and specific items.
Effective Date: 1st July, 2023

These amendments and changes will have various implications for individuals, businesses, and the overall tax landscape in Kenya. It’s essential for taxpayers to stay informed and comply with the new regulations.