Tax Amnesty & VAT Reforms in Finance Bill 2024
The recent appointment of Hon. John Mbadi as the Cabinet Secretary for Finance and Economic Planning has shifted focus towards economic reform in Kenya. In his first speech, he emphasized the urgent need to address Kenya’s debt, now over KES 10 trillion. He also outlined his plan to boost economic growth and eliminate inefficiencies.
Key Proposed Amendments
Extension of Tax Amnesty
The Finance Act of 2023, declared unconstitutional by the Court of Appeal, had sought to amend Section 37 of the Tax Procedures Act. This amendment aimed to offer tax amnesty by waiving penalties and interest for those who paid their principal tax liabilities by June 30, 2024. It applied to liabilities up to March 31, 2022. However, because this provision was introduced late, it did not receive full consideration.
If the CS reintroduces and passes this provision through Parliament, it could encourage more taxpayers to settle their outstanding liabilities. The previous amnesty program raised KES 43 billion, according to the Treasury. To further encourage compliance, proposals during public participation might extend this amnesty to cover liabilities for 2023.
Rationalization of the VAT Act
During the FY 2024/2025 budget reading, the former CS proposed changes to the VAT Act 2013. The goal was to reduce capital expenditure linked to VAT refunds. The reclassification proposed included:
- Making exempt goods subject to VAT.
- Changing zero-rated consumables to exempt status.
- Limiting zero-rating to goods meant for export.
The new CS intends to align the VAT Act with these suggestions. Due to public protests against the 2024 Finance Bill, these changes might appear in the 2025 Finance Bill.
Conclusion
In the coming weeks, we can expect more proposals from the CS. These measures, included in the rejected 2024 Finance Bill, could significantly stabilize Kenya’s economy and manage its debt more effectively. The extension of tax amnesty and rationalization of the VAT Act are just the beginning of the needed reforms.
Written by Dancan Orina
