HIGHLIGHTS OF THE KENYAN FINANCE BILL 2024

The Kenyan Finance Bill 2024, recently tabled in Parliament, introduces significant reforms and adjustments aimed at addressing the country’s fiscal challenges while promoting economic growth. This bill has a range of measures designed to enhance revenue collection, streamline tax administration, and foster investment.

One of the most notable features of the Finance Bill 2024 is the introduction of the Digital Service Tax. This tax targets revenues generated from digital marketplaces, including e-commerce platforms, digital advertising, and other online services. The DST is set at a rate of 3% on gross transaction value, aiming to tap into the growing digital economy and ensure fair taxation of digital services provided to Kenyan users by both local and foreign companies.

The bill proposes significant changes to the VAT regime. Key among these changes is the reclassification of various goods and services, with some items moving from  zero-rated status to the standard 16% VAT rate. This adjustment aims to broaden the tax base and increase revenue. Additionally, the bill introduces a VAT on exported services, which has been a subject of debate, with proponents arguing it ensures competitiveness and revenue generation while critics fear it may hamper the export service sector.

To enhance equity in the tax system, the Finance Bill 2024 introduces progressive income tax rates for high earners, with a new top rate of 35% for individuals earning over KES 1 million per month. This move is intended to increase tax contributions from the wealthiest individuals. For corporations, the bill proposes a reduction in the corporate income tax rate for small and medium enterprises (SMEs) from 30% to 25%, aiming to stimulate growth and investment in this vital sector.

The bill includes a review of excise duty rates on several products. Excise duty on alcoholic beverages, tobacco products, and sugary drinks is set to increase, reflecting the government’s commitment to public health and revenue mobilization. Additionally, excise duty on mobile money transactions is set to rise from 12% to 15%, a measure expected to generate significant revenue but also likely to impact the cost of mobile financial services for consumers.

To align Kenya’s tax policies with global best practices, the Finance Bill 2024 proposes an increase in the capital gains tax rate from 5% to 10%. This adjustment aims to boost revenue from property and equity sales while encouraging long-term investment by making quick speculative trades less attractive.

In a bid to promote sustainable development, the bill introduces various incentives for investments in renewable energy. These include tax holidays for new renewable energy projects, accelerated depreciation rates for green technologies, and exemptions on import duties for equipment used in renewable energy production. These measures are expected to attract significant investment in Kenya’s renewable energy sector, contributing to the country’s goals of reducing carbon emissions and enhancing energy security.

The Finance Bill 2024 includes several provisions aimed at improving tax administration and compliance. The Kenya Revenue Authority (KRA) is set to receive enhanced powers to access third-party information, conduct audits, and enforce tax collection. The bill proposes the introduction of an electronic invoicing system to improve VAT compliance and reduce fraud. These measures are expected to streamline tax administration, increase transparency, and enhance revenue collection.

Recognizing the importance of the manufacturing sector in economic growth and job creation, the bill proposes several measures to support this sector. These include tax incentives for the purchase of manufacturing equipment, reduced import duties on raw materials, and tax credits for research and development expenditures. These initiatives aim to boost local manufacturing, create jobs, and enhance Kenya’s competitiveness in the global market.

The Kenyan Finance Bill 2024 is a comprehensive piece of legislation that seeks to address the country’s fiscal challenges through a mix of tax reforms, incentives, and enhanced administrative measures. While some of the proposed changes, such as the Digital Service Tax and VAT adjustments, may face resistance, the overall aim is to create a more equitable and efficient tax system that supports economic growth and development. As the bill progresses through Parliament, stakeholders will continue to engage in discussions to ensure that the final law balances the needs of the government with the interests of businesses and individuals.

Valentine Ndeta