Implementation of the Finance Act, 2023

The Court of Appeal of Kenya lifted the conservatory orders that had suspended the implementation of the Finance Act, 2023 on 28, July 2023. This decision by the Court of Appeal is a significant development for the Kenyan tax landscape. It means that businesses and individuals should review their tax affairs and ensure that they are compliant with the new tax laws.

The Finance Act 2023 introduced a number of significant changes to the tax laws in Kenya. Some the key changes effective from 1, July 2023 include;

Income Tax Changes

• The top marginal PAYE rate has been increased from 30% to 32.5% for income in excess of Kes 500,000 per month. The rate is further increased to 35% for income in excess of Kes 800,000 per month.
• A new housing levy of 1.5% has been introduced. This levy will be a mandatory contribution of 1.5% of the basic pay of an employee, matched with an equivalent amount by the employer.
• The mileage allowance has been standardized as per the AAK rates. This means employees will now be able to claim a standard mileage allowance per kilometer for business travel.
• A new relief has been introduced for contributions made to post-retirement medical funds.
• The rate of turnover tax has been increased to 3% and the upper threshold for turnover has also been reduced from Kes 50 Million to Kes 25 million.
• A new withholding tax on digital content monetization at the rate of 5% and 20% for residents and non-residents respectively.

Value Added Tax

All changes under the VAT Act were to come into effect on 1st July, 2023. Some of these changes included;

• Zero rate on exported services.
• Standard VAT rate on petroleum products
• Zero rate on liquified petroleum products
• Restriction of input VAT based on prerequisite documents and the supplier declaring the sales invoice return.

Excuse Duty

All changes under the Excise Duty Act were to come into effect on 1st July 2023.

The decision by the Court of Appeal was based on a number of factors, including the following;

• The High Court did not specify the particular provisions of the Finance Act, 2023 that were in dispute.
• The High Court’s decision did not take into account the overwhelming public interest in the implementation of the Act.
• There is a basis for recouping overpaid taxes, that is if the High Court’s decision is upheld.

For more information about the finance act 2023, please click here……

Conclusion

In the principle of equal protection of the law, the decision by the Court of Appeal to lift the conservatory orders that prohibited the implementation of the Finance Act 2023 is a reminder that the Judiciary plays an important role in ensuring that the law is applied fairly and consistently.

Businesses and individuals will be required to comply with the changes and amendments to the various tax obligations thereof. Otherwise, they risk prompting the Kenya Revenue Authority in raising an assessment on the back taxes as a result of non-compliance.

Prepared by,

Erastors Chogo