In order to amend the existing tax laws and fiscal policies, the parliament of Kenya has passed the Finance Act 2019 affecting various key tax provisions. Below are the major main changes that might affect entities operating in Kenya and their international parties;
The Finance Act has lifted the interest rate cap by amending Section 33B of the Banking Act that previously limited financial institutions to set a maximum interest rate chargeable at no more than 4% of the prescribed rate by the CBK.
With the repeal of this interest rate cap, micro, small and medium sized enterprises will have easy access to credit facilities. As a result, the share price for the financial industry is expected to rise.
The Finance Act has amended the Income Tax Act by subjecting any income that is accrued through a digital market place will now be subject to income tax. The Finance Act amends the VAT Act further by subjecting any supplies made through a digital market place to Value Added Tax (VAT).
This is bound to affect the many entities whose main business transactions are carried out in the digital market place. We are currently looking forward to the regulations that will be issued by the Cabinet Secretary for National treasury will give clarity on the mechanism that will be adopted in taxing of the digital economy. It is our hope that the regulations will align with the international best practice on digital economy by including measures proposed under the OECD Base Erosion profit Shifting (BEPS) framework.
In order to enhance the government’s Big Four Agendas, any foreign controlling companies that will implement projects under the Affordable Housing Scheme, upon recommendation by the CS for housing, will now be exempt from thin capitalization.
This provision is bound to benefit foreign investors considering that the companies that implement affordable housing projects are most likely to be highly geared due to their capital intensive nature.
The Finance Act provides that companies operating plastic recycling plant will be subject to 15% corporate tax for the first five years of operations. This is effective starting January 1, 2020
The Finance Act also exempts plant and machinery for a plastic recycling plant from Value Added tax (VAT). This complements the move by Kenyan government in banning plastic bags and conservation of environment. The beneficiaries of this provision also include the foreign investors establishing and operating plastic waste management companies in the country.
The Finance Act has amended the Vat Act and Excise Duty Act by clarifying the word concession for the purposes of an official aid funded project. An official aid funded project is a project that is funded by a concessional loan in accordance with an agreement between the government and any foreign government agency, institution, foundation, organization or any other aid funded agency. A concession loan is defined as a loan with at least 25 per cent grant element
With regards to this definition, the Finance Act now gives more clarity on what should constitute concessional loans for purposes of exemption from tax granted to aid funded projects. Goods and services purchased under official aid funded projects are exempt from VAT, Excise Duty, Import Declaration Fees and Railway Development Levy.
According to the Finance Act 2019, any person shall be liable to account for import VAT on importation of taxable services to Kenya whether or not they are registered for VAT or not. Initial, only registered individuals would be imposed with VAT liability on imported services.
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