Today, the Kenyan Parliament is set to discuss the Finance Bill 2024, which has sparked significant public debate. The bill aims to introduce a variety of tax reforms intended to broaden the tax base and increase government revenue. Below are the key highlights and contentious issues surrounding the bill.
Key Highlights of the Finance Bill 2024
1. Motor Vehicle Ownership Tax
Proposal: A 2.5% tax on the value of motor vehicles, payable during insurance cover issuance.
Details: The tax will range from KSh 5,000 to KSh 100,000 depending on the vehicle’s make, model, engine capacity, and year of manufacture.
Implications: This new tax is expected to affect vehicle owners significantly, as it adds to the cost of owning and maintaining a car.
2. Withholding Tax on Public Supplies
Proposal: A 3% withholding tax on goods supplied to public entities, with non-residents paying 5%.
Details: This tax will be deducted by public entities from payments made to suppliers.
Implications: Suppliers might increase their prices to offset the withheld amount, potentially increasing costs for public projects.
3. Digital Marketplace Income Tax
Proposal: Owners or operators of digital marketplaces to withhold 5% of income paid to residents and 20% to non-residents.
Details: This includes income from services such as ride-hailing, food delivery, and freelance work.
Implications: This measure aims to ensure that digital economy participants contribute to the tax base.
4. Economic Presence Tax
Proposal: Introduction of a 30% tax on the deemed taxable profit of non-residents providing digital services.
Details: The taxable profit is set at 20% of the gross turnover.
Implications: This tax targets non-resident digital service providers, ensuring they pay taxes on income derived from Kenya.
5. Infrastructure Bond Tax
Proposal: A 5% withholding tax on income from infrastructure bonds.
Details: Previously tax-exempt, this move aims to increase revenue from bond investments.
Implications: This may discourage investment in infrastructure bonds, potentially affecting funding for public projects.
Controversial Issues and Public Complaints
1. Increased Cost of Living
Many Kenyans are concerned that the new taxes, particularly on motor vehicles and digital services, will increase the cost of living. The additional financial burden on car owners and digital service consumers is a major point of contention.
2. Impact on Small and Medium Enterprises (SMEs)
– The withholding tax on public supplies and digital marketplace income tax could disproportionately affect SMEs, which may struggle to absorb these additional costs. This could lead to higher prices for goods and services, further straining the economy.
3. Burden on the Digital Economy
The economic presence tax and the expanded scope of digital marketplace taxes are seen as measures that could stifle innovation and growth in the digital sector. Stakeholders argue that these taxes could deter foreign investment and limit the growth potential of local startups.
4. Reduction in Tax Benefits
The removal of tax exemptions on infrastructure bonds and the reduction in the period for claiming deferred foreign exchange losses are seen as unfavorable changes that reduce the attractiveness of investments in Kenya.
Benefits of the Finance Bill 2024
1. Increased Revenue Collection
The proposed taxes aim to increase government revenue, which is essential for funding public services and infrastructure projects.
2. Harmonization with International Practices
Some amendments, like the new definition of “royalty” and removal of the requirement for pension funds to register with the Commissioner, align Kenya’s tax regime with international best practices, potentially making it easier for foreign investors to navigate the tax system.
3. Enhanced Compliance and Administration
The introduction of Advance Pricing Agreements and other compliance measures aims to streamline tax administration and reduce tax evasion, contributing to a more robust tax system.
The Finance Bill 2024 presents a complex mix of proposals that aim to boost revenue but also face significant opposition from the public. As Parliament debates these proposals, the outcome will significantly impact Kenya’s economic landscape.
Taxation is not a problem here but corruption.These taxes end up in individuals pockets hence a burden to Kenyans.Fight corruption and the little tax you have will be enough Mr President