The Tax Laws (Amendment) Bill, 2024
Status Timeline
Proposed
Active now
Public Review
Pending
Debate
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Executive
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Final
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New 15% Minimum Top-Up Tax for Multinational Enterprises
Inserts a new Section 12G in the Income Tax Act (Cap. 470) introducing a Minimum Top-Up Tax for multinational groups with a consolidated annual turnover of EUR 750 million or more. The tax ensures that the group's effective tax rate in Kenya is brought up to a minimum threshold of 15% of net income.
Digital Service Tax Replaced by Significant Economic Presence Tax
Repeals Section 12E of the Income Tax Act (Cap. 470) to replace the 1.5% Digital Service Tax with a Significant Economic Presence Tax for non-residents.
- Deemed taxable profit is set at 10% of gross turnover.
- The rate of tax is 30% of the deemed taxable profit, resulting in an effective tax rate of 3% on gross turnover.
- Returns must be filed and tax paid by the 20th day of the following month.
Increased Pension Deductions and New Health Levies Deductibility
Amends Sections 22A and 22B of the Income Tax Act (Cap. 470) to increase the maximum tax-deductible contribution to registered pension or provident funds from KSh 240,000 to KSh 360,000 per year (KSh 30,000 per month). It also introduces tax deductions for:
- The Affordable Housing Levy paid under the Affordable Housing Act, 2024.
- Contributions made to the Social Health Insurance Fund (SHIF).
- Contributions to post-retirement medical funds up to KSh 15,000 per month.
Withholding Tax Introduced on Goods Supplied to Public Entities
Amends Section 35 of the Income Tax Act (Cap. 470) to introduce a withholding tax on payments made by public entities (ministries, state departments, and county governments) for the supply of goods. The rates are:
- 5% for resident entities.
- 0.5% for non-resident entities.
Higher Railway Development Levy and Increased Excise Duties
Amends Section 8 of the Miscellaneous Fees and Levies Act (Cap. 469C) to raise the Railway Development Levy from 1.5% to 2.5% of the customs value of imported goods. It also amends the Excise Duty Act (Cap. 472) to increase the excise rate on betting, gaming, lotteries, and prize competitions from 12.5% to 15%, raise excise duty on liquid nicotine to KSh 100 per ml (up from KSh 70), and tax imported sugar at KSh 7.50 per kg.
Bill No.
National Assembly Bills No. 47 of 2024
Gazette No.
Supplement No. 192
Sponsor
Kimani Ichung'wah
Background
The Tax Laws (Amendment) Bill, 2024 seeks to amend several tax-related statutes in Kenya, including the Income Tax Act (Cap. 470), the Value Added Tax Act (Cap. 476), the Excise Duty Act (Cap. 472), and the Miscellaneous Fees and Levies Act (Cap. 469C). The proposed changes aim to expand the tax base, align local legislation with international tax standards regarding digital trade and multinational enterprises, provide tax reliefs for domestic housing and healthcare programs, and raise domestic revenue through adjusted levy rates.
Key Amendments
Income Tax Act (Cap. 470)
- Significant Economic Presence Tax: Section 12E is repealed and replaced with a Significant Economic Presence Tax targeting non-resident digital business operators. Deemed taxable profit is evaluated at 10% of gross turnover, which is then taxed at the corporate rate of 30%.
- Minimum Top-Up Tax: Introduces Section 12G, imposing a top-up tax on members of multinational enterprise groups with a consolidated annual turnover of EUR 750 million or more, ensuring their effective tax rate in Kenya is at least 15%.
- Allowable Deductions: Deductions are now permitted for payments of the Affordable Housing Levy, contributions to the Social Health Insurance Fund (SHIF), and post-retirement medical fund contributions (capped at KSh 15,000 per month).
- Retirement Schemes: The maximum annual tax-free contribution to registered pension and provident funds is raised from KSh 240,000 to KSh 360,000 (KSh 30,000 monthly).
- Employee Meal Benefits: The tax-free limit on meals served by employers in canteens or cafeterias is increased from KSh 36,000 to KSh 60,000 annually.
- Capital Gains Tax (CGT): Capital gains tax charged on certain certified transactions is reduced from 15% to a final rate of 5% for investments exceeding KSh 3 billion certified by the Nairobi International Financial Centre Authority.
Value Added Tax Act (Cap. 476)
- Time of Supply for Exports: Section 12 is amended to clarify that the time of supply for exported goods is the moment the Customs department issues the official export certificate.
- VAT Apportionment: Section 17 is amended by deleting subsections (7) and (8), removing the 90% threshold rule that previously allowed taxpayers to claim 100% of input tax.
- Exemptions and Zero-Rating: Changes to the First and Second Schedules exempt aircraft parts (excluding helicopters), raw materials for manufacturing sanitary pads, diapers, and tampons, and agricultural pest control products. The transfer of a business as a going concern is designated as zero-rated instead of exempt.
Excise Duty Act (Cap. 472)
- Digital Platform Services: Non-residents providing excisable services through digital platforms are now liable to pay excise duty in Kenya.
- Due Date of Payment: Amends Section 36 to allow licensed manufacturers of alcoholic beverages to pay excise duty by the 5th day of the following month, replacing the previous 24-hour payment obligation.
- Excise Rate Revisions: Rates are adjusted upwards for several items in the First Schedule: betting, gaming, and lotteries are taxed at 15% (up from 12.5%); filtered and unfiltered cigarettes are raised to KSh 4,100 per mille; liquid nicotine is set at KSh 100 per ml; and imported sugar is taxed at KSh 7.50 per kg.
Miscellaneous Fees and Levies Act (Cap. 469C)
- Railway Development Levy: Section 8 is amended to increase the rate of the Railway Development Levy from 1.5% to 2.5% of the customs value of imported goods entering Kenya for home use.
New Obligations
- Non-Resident Digital Providers: Non-resident digital service providers must submit Significant Economic Presence Tax returns and remit payments to the Commissioner of the Kenya Revenue Authority by the 20th day of the month following the end of the tax period.
- Public Entities: Public entities must withhold 5% on payments for supplies of goods made by resident persons and 0.5% for non-resident suppliers.
- Multinational Enterprises: Covered multinational firms must compute their effective Kenyan tax rates and pay the relevant Minimum Top-Up Tax where the effective rate falls below 15%.
Penalties
- EPZ Late Submission Penalties: The Eleventh Schedule of Cap. 470 is amended to remove the daily KSh 2,000 late-filing penalty for Export Processing Zone (EPZ) enterprises, transitioning penalty enforcement for non-filing to the general terms of the Tax Procedures Act.
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