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Win for M-PESA users as gov't drops several tax proposals on Finance Bill 2024

The government has made several changes to the Finance Bill 2024 after public outcry

Kenya Kwanza Parliamentary Group meeting held at State House on Tuesday, June 18
  • The Finance Bill 2024 aims to generate an additional Sh302 billion in revenue
  • Adjustments include changes to VAT and excise duties on essential goods and services to protect citizens from the rising cost of living
  • Motor Vehicle Tax Proposal has been dropped due to concerns about its practicality and potential negative impact

During a Kenya Kwanza Parliamentary Group meeting held at State House on Tuesday, June 18, President William Ruto and the National Finance and Planning Committee discussed several key considerations made after public participation concerning the Finance Bill 2024.

The Finance Bill 2024 aims to generate an additional Sh302 billion in revenue, which is intended to bolster the projected total revenues for the year to Sh3.3432 trillion.

These considerations aim to address public concerns and mitigate the impact of proposed tax measures on the cost of living for Kenyans.

1. Proposal to Increase Mobile Money Transfers Excise Tax Dropped

Committee proposed to maintain the prevailing rate of money transfer services by banks and financial institutions and money transfer services by cellular phone service providers.

2. KRA's access to personal data

The committee noted that the proposal to allow the KRA access to personal data as proposed may not meet the threshold under articles 31(c) and (d) of the Constitution of Kenya.

Additionally, the Committee observed that Section 51 of the Data Protection Act outlines the circumstances under which exemptions might apply.

Further, Section 60 of the Tax Procedures Act empowers the commissioner or an authorised officer with a warrant to have full access to any data for the purposes of administering a tax law.

3. VAT on Bread

The government has made several adjustments to protect citizens from the rising cost of living. These adjustments include changes to VAT and excise duties on essential goods and services.

Initially, the Finance Bill 2024 proposed a VAT on bread, a staple food for many Kenyans.

However, following public outcry, this proposal has been dropped to avoid increasing the cost of this essential item​​.

4. Motor Vehicle Tax Proposal Dropped

The proposed motor vehicle tax has been dropped due to concerns about its practicality and the potential negative impact on both consumers and businesses​.

5. Considerations on Edible Oil

The proposal to impose excise duty on edible oil has been dropped. This decision aims to keep the prices of edible oil stable and affordable, which is crucial for many households that rely on it for daily cooking​​.

6. SHIF to Become Tax Allowable

Contributions to the Social Health Insurance Fund (SHIF) will now be tax-deductible. This move is intended to incentivise participation in the government’s healthcare programs and alleviate the tax burden on contributors.

7. Eco-Levy Adjustments

Diapers and sanitary pads will not be subjected to the eco-levy, addressing concerns about affordability and access to these essential items​.

The committee removed eco-levy on tyres of motorcycles, bicycles, wheelchairs three wheeled motorised vehicles (tuk tuks) and reduce the rate of eco-levy for certain finished goods.

8. Increase in VAT Threshold

The VAT threshold will be increased from Sh5 million to Sh8 million. This adjustment aims to reduce the tax burden on small and medium enterprises, allowing them to grow without being subjected to VAT until they reach a higher turnover​​.

9. Exemptions for eTIMS Registration

Farmers and traders with a turnover of less than Sh1 million will be exempt from electronic tax invoice management system (eTIMS) registration, simplifying compliance for small-scale traders.

10. Excise Duty on imported motorcycles & other products

Committee proposes to maintain the current rates of excise duty on imported motorcycles, plastics, onions, and potatoes, among other items.

11. Change in Excise Duty Calculation

Excise duty on alcoholic beverages will be calculated based on alcohol content rather than volume.

This measure is expected to ensure a fairer taxation system for different types of alcoholic products​​. Beer products will be cheaper while spirits are likely to be more expensive.

12. Tax Exemption for Pension Schemes

Pension schemes will be exempt from taxes, encouraging more individuals to invest in their retirement savings and providing financial security for the elderly​​.

13. Hiring of Intern Teachers The government plans to hire 46,000 intern teachers and an additional 20,000 teachers.

This initiative is part of efforts to improve the education sector and address the shortage of teachers in schools​.

14. Digital content monetisation

The Finance Bill 2024 proposed to expand the coverage of digital content monetisation works for income tax purposes to include creative works, creating or sharing of the material and any other material that is not exempt under the Income Tax Act.

The committee noted that not all creative works generate income and therefore, it is necessary to specify that only those that generate income are subject to the tax.

15. Taxation on employment benefits

The Committee deleted an amendment that sought to exclude public officers from taxation of their employment benefits in the form of reimbursements by the employer for assets acquired.

This clause would discriminate against private sector employees and has the potential of abuse hence the deletion.

16. Increase in Digital services providers tax

The committee noted that the profit margin for digital services providers is usually higher because such providers do not incur large expenses compared to companies with physical presence.

Therefore, the purpose of the increase is to align the deemed profit with what would have been the profit if the companies were not enjoying the lower production cost.

Nevertheless, the committee proposed to reduce the rate of deemed income from 20% to 10% of gross turnover.

17. VAT on Aircraft parts

The committee deleted the proposed VAT on aircraft spare parts, noting that most airline operators offer maintenance and repair operations to several international and domestic airlines in Kenya.

Therefore, a tax on aircraft spare parts would lead to a high cost of operation for airlines in Kenya, thus making the country uncompetitive as a regional hub.

These considerations reflect the government’s efforts to balance revenue generation with the need to protect citizens from undue financial strain.

The adjustments made to the Finance Bill 2024 show responsiveness to public feedback and a commitment to ensuring that tax policies are fair and supportive of economic growth.

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