&w=64&q=75)
The National Treasury is planning to introduce new tax measures in response to a public participation exercise involving members of the public, non-governmental organizations, civil societies, professional bodies, private sector players, religious groups, and other stakeholders.
The bills are;
- Tax Laws (Amendment) Bill, 2024
- Tax Procedures (Amendment) Bill, 2024
- Public Finance Management (Amendment) (No.3) Bill 2024
- Public Finance Management (Amendment) (No.4) Bill, 2024.
Detailed Proposals in the Tax Laws (Amendment) Bill, 2024
Definition of Digital Marketplace
The Bill seeks to amend Section 3 of the Income Tax Act by expanding the definition of “digital marketplace” to include services such as:
- Ride-hailing services
- Food delivery services
- Freelance services
- Professional services
This change ensures that income generated from these services is taxable, aiming to expand the tax base by capturing the income of digital platform owners.
Income from Employment
The Bill seeks to amend Section 5 of the Income Tax Act to increase the tax-exempt limits for certain employee benefits:
- Meals Provided by Employers: The tax-free limit for meals will increase from Sh48,000 to Sh60,000 per year.
- Non-Cash Benefits: The tax-exempt limit for non-cash benefits will increase from Sh36,000 to Sh60,000 shillings per year.
- Gratuity and Similar Payments: The tax-free limit for gratuity payments will increase from Sh240,000 to Sh360,000.
These changes aim to increase employee take-home pay by reducing the taxable portion of benefits.
Significant Economic Presence Tax
The government wants to introduce a new tax for foreign companies that make money in Kenya but do not have a physical office there.
This is called the “Significant Economic Presence Tax.” For example, if a foreign tech company offers services in Kenya and makes a profit, it should pay taxes to the government.
This tax ensures that international companies contribute their fair share to the country’s tax revenue, even if they operate from abroad.
The proposed amendment is intended to replace Digital Service Tax with Significant Economic Presence to provide for taxation at the effective rate of 6% as opposed to 1.5% under Digital Service Tax.
Minimum Top-Up Tax
The Bill introduces the Minimum Top-Up Tax to ensure multinationals pay a fair share of taxes. Details include:
Multinational companies will have to pay a minimum effective tax rate of 15%.
It is applicable to companies with a consolidated annual turnover of Sh100 billion.
This prevents tax base erosion by ensuring that multinationals with low effective tax rates top up their tax payments.
Deduction Allowed in Ascertainment of Income
The Bill proposes amendments to make the following amounts deductible from taxable income:
- Contributions to the Social Health Insurance Fund
- Affordable Housing Contributions
- Post-Retirement Medical Fund Contributions: Up to Sh15,000 shillings
These deductions are intended to increase disposable income and improve employees' financial well-being.
Deductions for Contributions to Registered Pension or Provident Funds
The deductible amount for contributions to registered pension or provident funds will increase:
- From Sh240,000 to Sh360,000 per year
- From Sh20,000 toSh30,000 per month
These changes encourage retirement savings by offering greater tax relief.
Deductions for Registered Individual Retirement Funds
The deductible limit for contributions to registered individual retirement funds will increase:
- From Sh240,000 to Sh360,000 per year
- From Sh20,000 toSh30,000 per month
This amendment provides additional tax relief to those saving for retirement.
Repeal of Affordable Housing Relief
The Bill proposes repealing the Affordable Housing Relief, as it will be included as an allowable deduction under Section 15.
Insurance Relief & Harmonization with the Social Health Insurance Act
The Bill proposes amending Section 31 of the Income Tax Act to align with the Social Health Insurance Act, 2023. References to the National Hospital Insurance Fund (NHIF) will be removed.
Deduction of Tax from Certain Income
The Bill introduces new rules for withholding tax:
- Payments for Goods to Public Entities: 5% withholding tax for non-residents and 0.5% for residents.
- Payments on Digital Marketplaces: 20% withholding tax for non-residents and 5% for residents.
The aim is to streamline tax administration and ensure fair tax collection from digital transactions.
Income Exempt from Tax
The Bill will amend the First Schedule to exempt certain types of income from tax:
- Pension Payments: Gratuity and other retirement payments from registered pension funds, provident funds, public pension schemes, or the National Social Security Fund.
- Exemption Adjustments: Income from the National Housing Development Fund will no longer be exempt.
- Tax exemptions will also apply to early withdrawals from pension funds due to ill health or after 20 years of membership.
Additionally, the Bill proposes a 5% tax on interest income from infrastructure bonds issued after the law becomes effective.
Non-resident contractors, sub-contractors, consultants, or employees working on fully grant-financed projects will be exempt from income tax.
Taxation of Export Processing Zone (EPZ) Enterprises
The Bill will amend the Eleventh Schedule to the Income Tax Act to remove penalties for EPZ enterprises that fail to submit tax returns.
These penalties are now covered under the Tax Procedures Act.