Deloitte has hosted an informative and engaging briefing session to analyze the Finance Bill, 2023 (“the Bill”) and released the Deloitte Finance Bill 2023 Insights: Navigating Headwinds for Inclusive Growth. The session provided an opportunity to delve into the proposed changes by unpacking them for deeper analysis ahead of due process to pass the Bill into law in June 2023.
The Bill was published on 28 April 2023 and tabled in Parliament for the first reading on 4 May 2023. The Bill has proposed a raft of changes and amendments to the various tax statutes in Kenya, and other laws such as the Stamp Duty Act, the Insurance Act, the Capital Markets Act, the Unclaimed Financial Assets Act, the Statutory Instruments Act, the Betting, Lotteries and Gaming Act, the Evidence Act, the Kenya Roads Board Act, the Road Maintenance Levy Fund Act, and the Retirement Benefits Act.
The proposed amendments will have notable economic and fiscal impacts. Commenting on the proposed tax measures, Deloitte East Africa Tax and Legal Leader Fredrick Omondi noted, “The Bill has a raft of tax measures that will significantly increase the burden on taxpayers both as a result of tax increases such as the higher marginal tax rate of 35% for individuals earning above KES 6 million per annum (KES 500,000 per month), the increase in turnover tax rate from the current 1% to 3% of the turnover, increased Value Added Tax (VAT) on petroleum products from the current 8% to 16%, introduction of contributions to national housing development fund, and higher excise duty rates on mobile money transactions among others. The Bill also introduces tighter administrative measures such as shorter periods for remitting taxes, removal of waivers, and requirements for security deposits pending appeal. There are some welcome measures to expand the tax base to digital assets and incomes from digital gigs. The overall picture is one of a government keen to shore up tax revenues in the short term to make ends meet but unable to resist the temptation to continuously raid the easy targets, be it individuals in formal employment or products that are already heavily taxed like petroleum products.”
In regard to the indirect tax proposals in the Bill, Deloitte East Africa Tax and Legal Partner Lilian Kubebea noted, “While some of the proposals in the Bill such as the proposed increase in the VAT rate from 8% to 16% on the petroleum products will most likely increase the cost of living, it is notable that the Government has also sought to reverse some of the recent amendments that negatively impacted on businesses such as introduction of VAT on exported services and transfer of business as a going concern. For excise duty, like previous years, the Government is proposing to bring more goods and services within the ambit of excise duty, a move that is seen as an avenue to mobilize more revenue for the Government.”
In view of the tax proposals included, Deloitte East Africa Tax and Legal Senior Manager Fredrick Kimotho noted “this Bill is certainly one of its kind with significant tax proposals that are likely to impact on all businesses and individuals in one way or the other. This being the first Bill under the new regime, it was highly anticipated as it would signal the direction of the new administration while navigating several challenges including global economic slowdown, swollen public debt, and high cost of living even as it seeks to implement its socio-economic agenda. While it was not expected to be business as usual, it is somewhat discouraging to note that some of the proposed measures appear to be largely driven by revenue related pressure as opposed to long term policy considerations. The Bill contains a myriad of proposals that were either previously rejected or amended under the previous years’ bills. The frequent changes are bad for business as they grapple with an unpredictable business environment. This also casts significant doubt on the Government’s commitment to implement the principles laid out in the National Tax Policy, which is currently undergoing public participation.”
The Parliament via the Departmental Committee on Finance and National Planning has invited the public to submit comments on the Bill by 20 May 2023 before it is approved by Parliament and assented into law sometime in June. It is expected that the public participation and the debate in Parliament will lead to some changes in the Bill prior to its adoption into law.