Understanding Kenya’s New Tax Laws: What You Need to Know about the Proposed 2024 Amendments

On September 17, 2024, Kenya’s National Treasury, acting under Articles 174 and 232 of the Constitution, invited citizens and stakeholders to voice their opinions on several critical legislative issues. This engagement highlights Kenya’s commitment to ensuring that legislative and economic reforms reflect the needs and concerns of its citizens. In this blog, we will break down the key points and the proposed legislative changes that the Treasury intends to roll out.

1. Ensuring County Funding in Times of Crisis

The Treasury has proposed measures to prevent cash shortages that could impact county service delivery if the Division of Revenue Bill and County Allocation of Revenue Bill are delayed. By ensuring counties continue receiving funds, even in transitional periods, this proposal aims to provide stability and safeguard public services.

2. Debt Management and Sustainable Public Finances

Amid Kenya’s significant debt levels, reforms are underway to manage public finances more sustainably, protecting Kenyans from additional economic burdens. The proposals include legislative adjustments to foster social and economic well-being while ensuring that public debt remains manageable.

3. Fairness and Efficiency in Taxation

To promote equity in the tax system, the Treasury proposes new legislation to ensure fair tax practices, reduce revenue loss, and introduce tax amnesties where necessary. This shift is intended to redirect revenue towards projects that enhance Kenyans’ quality of life.

4. Enhancing Tax Compliance and Reducing Evasion

The government aims to improve tax administration, focusing on compliance to ensure every taxpayer contributes fairly. Efforts to minimize tax evasion and avoidance include introducing clearer regulations and stiffer penalties for non-compliance.

Key Bills and Reforms in the Pipeline

The Treasury has consolidated these public proposals into four significant bills, which have been submitted for further consideration:

• Tax Laws (Amendment) Bill, 2024
• Tax Procedures (Amendment) Bill, 2024
• Public Finance Management (Amendment) (No. 3) Bill, 2024
• Public Finance Management (Amendment) (No. 4) Bill, 2024

Each bill focuses on targeted reforms to improve the tax framework, simplify administrative processes, and respond to the dynamic digital economy.

Noteworthy Amendments in the Tax Laws (Amendment) Bill, 2024

1. Redefining the Digital Marketplace Kenya’s digital economy has rapidly expanded, leading the Treasury to redefine “digital marketplace” under the Income Tax Act to include ride-hailing, food delivery, and freelance services. This updated definition broadens the tax base and ensures that digital platforms contribute to tax revenues.
2. Significant Economic Presence Tax Replacing the Digital Service Tax, the Significant Economic Presence Tax targets non-resident digital companies, ensuring that businesses with substantial economic activity in Kenya pay a 6% tax. This aligns Kenya’s digital taxation approach with global standards.
3. Minimum Top-up Tax To prevent tax base erosion by multinational corporations, this new tax requires that multinational enterprises with a global revenue over 100 billion shillings pay a minimum tax of 15%.
4. Revisions in Employment and Pension Benefits The proposed changes increase tax exemptions on employee benefits like meals, non-cash allowances, and gratuity, supporting employee welfare. Additionally, deductions on retirement fund contributions will increase, enhancing Kenyans’ savings for retirement.
5. Changes to Affordable Housing and Insurance Relief The Affordable Housing Relief is set for repeal, with similar deductions incorporated in other sections of the Act. Similarly, the insurance relief adjustments align with the Social Health Insurance Act, 2023.

Value Added Tax (VAT) and Excise Duty Amendments

1. Updates in VAT for Exported Goods Exporters can now claim VAT refunds based on customs documentation, ensuring that only valid exports receive this benefit, minimizing VAT fraud.
2. Reclassification of Goods and Services for Tax Expenditures In a bid to streamline VAT, the Treasury proposes to reclassify various items, including agricultural inputs, to prevent abuse of tax exemptions while reducing costs for local producers.
3. Excise Duty on Digital Services The Excise Duty Act amendments introduce excise tax on digital services offered by non-residents, broadening revenue collection from the digital economy.

What’s Next?

With 35 public submissions received from diverse sectors—including NGOs, private sector players, and religious organizations—the Treasury’s proposed bills reflect an inclusive and comprehensive approach to economic reform. These bills will now proceed to the National Assembly for debate and, if passed, will bring about significant changes aimed at building a robust, equitable, and sustainable tax system.

By fostering responsible debt management, equity in taxation, and efficient tax administration, these legislative reforms aim to bolster Kenya’s economic growth while easing the financial burden on its citizens. As these proposals advance through legislative scrutiny, they will mark a pivotal step toward a more resilient and inclusive Kenyan economy.

by Eugyne Kwach