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Kenyans rattled by proposed new taxes

Monday, May 13th, 2024 03:40 | By
President William Ruto inspects an affordable housing project in the Coast region. PHOTO/Print
President William Ruto inspects an affordable housing project in the Coast region. PHOTO/Print

Kenyans are bracing for more pain after the government proposed that the affordable housing relief be eliminated to help raise money for its Sh3.91 trillion budget.

 The Finance Bill 2024, to be introduced in the National Assembly today, seeks to amend the Income Tax Act by repealing section 30A, which deals with the relief.

 Relief refers to various programmes that help individuals and businesses lower their tax bills and settle tax-related debts.

 Section 30A provides that affordable housing relief be given to a resident individual who satisfies the KRA that they are eligible to apply under an affordable housing scheme, has applied, is waiting to be allocated a house, and is saving to purchase an approved house.

Right to sell

 The relief is set at 15 percent of an employee’s contribution and should not exceed Sh108,000 per annum.

 Reads the Bill: “The Income Tax Act is amended by repealing section 30A.”

 On the flip side, the bill now gives individuals who own homes under the affordable housing scheme the right to sell them, and seeks to delete the section of the Affordable Housing Act that barred beneficiaries from doing so.

 Section 54 of the Act provided that “except with the prior written consent of the Board, a purchaser of an affordable housing unit under this Act shall not by contract, agreement or otherwise, sell or agree to sell his or her unit or any interest therein to any other person”.

 Reads the bill: “The Bill also amends section 54 of the Affordable Housing Act, to clean up the provision following the advisory given by the Attorney General.” 

Money transfer

Besides losing the housing relief, Kenyans will have to pay taxes on money earned from digital content creation, on mobile money transfers and on motor vehicles, among others.

 The bill also proposes to increase excise duty on fees charged for money transfer services by banks, money transfer agencies and other financial services providers from 15 percent to 20 percent.

 It also seeks to increase excise duty on fees charged for money transfer services by telecoms and by financial institutions from 15 percent to 20 percent, while excise duty on betting, lottery (excluding charitable lotteries) and gaming has been increased from 12.5 percent to 20 percent of the amount wagered or staked.

 For motor vehicle owners, the bill seeks to introduce a 2.5 percent tax that they will pay when they buy insurance. The tax will be based on the value of the vehicle, but will not be less than Sh5,000 and more than Sh100,000.

 Reads the bill: “The value of a motor vehicle shall be determined on the basis of the make, model, engine capacity in cubic centimetres and year of manufacture of the motor vehicle.”

The tax will be collected by the insurer of the motor vehicle and remit it withinfive working days of issuing the insurance cover.

 An insurer who fails to do so will be liable to pay a penalty equivalent to 50 percent of the uncollected tax, along with the actual amount of the uncollected tax.

 Reads the bill: “Notwithstanding the provisions of this section, motor vehicle tax shall not be payable in respect of an ambulance, or a motor vehicle owned by the national government, county government, Kenya Defense Forces, National Police Service, National Intelligence Service or a person exempt from tax under the Privileges and Immunities Act.”

 Kenyans who earn an income making or facilitating payment on a digital marketplace will also be  taxed.

 The bill enhances the meaning of digital content monetization by including creative works and creating or sharing of the material as a form of acquiring an income, which will be taxed.

Digital marketplace

 The bill also redefines “digital marketplace” to mean an online or electronic platform that enables a person to sell or provide goods, property or service.

Ride-hailing, food delivery, freelance, professional, rental, and task-based services are affected.

 The bill also targets individuals who own and make money from digital platforms and websites in Kenya, including citizens and foreigners.

 Reads the bill: “Where resident or a non-resident person, being the owner or operator of a digital marketplace or platform, makes or facilitates payment in respect of digital content monetization, goods, property or services, the amount thereof shall be deemed to be income which accrued in or was derived from Kenya. 

“In this section, ‘platform’ means a digital platform or website that facilitates the exchange of a short-term engagement, freelance or provision of a service, between a service provider, who is an independent contractor or freelancer, and a client or customer.”

Banks also targeted

 The bill also introduces a ‘significant economic presence tax’ to be paid by a non-resident person whose income from the provision of services is derived from or accrues in Kenya through a business carried out over a digital marketplace.

The provisions will not apply to a non-resident person who offers services through a permanent establishment. The proposed taxation rate is 30 percent of the deemed taxable profit.

“A person subject to tax under this section shall submit a return and pay the tax due to the Commissioner on or before the twentieth day of the month following the end of the month in which the service was offered.”

Cheque handling

Banks will also be hit as various services that were previously exempted from taxation will now be taxed.

 These include the issuing of credit and debit cards, automated teller machine transactions, telegraphic money transfer services, and foreign exchange transactions, including the supply of foreign drafts and international money orders.

Others are cheque handling, processing, clearing and settlement, including special clearance or cancellation of cheques; the issuing of securities for money, including bills of exchange, promissory notes, money and postal orders, and the provision of guarantees, letters of credit and acceptance and other forms of documentary credit.

 Others are the issuing, transfer, receipt or any other dealing with bonds, Sukuk (Islamic or Sharia-compliant bonds), debentures, treasury bills, shares and stocks and other forms of securities or secondary securities.

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