The Finance Bill, 2024

Background

The Finance Bill, 2024 is submitted by the Cabinet Secretary for the National Treasury and Economic Planning. It formulates proposals relating to revenue-raising measures, liabilities, and the collection of taxes. It systematically amends the Income Tax Act (Cap. 470), the Value Added Tax Act (Cap. 476), the Excise Duty Act (Cap. 472), the Tax Procedures Act (Cap. 469B), and the Miscellaneous Fees and Levies Act (Cap. 469C), alongside several other public sector operational acts.

Key Amendments

Income Tax Act (Cap. 470)

• Digital Content Monetisation: Amends Section 2 to expand digital content monetisation to include creative works, sharing of material, or any other non-exempt material.
• Significant Economic Presence Tax: Section 12E is repealed and replaced with a tax of 30% on a deemed profit of 20% of gross turnover for non-resident digital service providers.
• Minimum Top-Up Tax: Section 12G establishes a top-up tax of 15% of adjusted net income for multinational enterprises with consolidated annual turnovers exceeding EUR 750 million.
• Motor Vehicle Tax: Section 12H introduces an annual tax of 2.5% on the value of motor vehicles, collected by insurers.
• Advance Pricing Agreements: Section 18G allows taxpayers to enter into five-year advance pricing agreements with the Commissioner for transactions with related entities.

Value Added Tax Act (Cap. 476)

• Definitions: Section 2 is amended to include electronic tax invoices issued under Section 23A of the Tax Procedures Act.
• Exemptions: Amends the First Schedule to exempt inputs for mosquito repellents, tea packaging materials, and certain agricultural inputs.
• Zero-Rating: Amends the Second Schedule to zero-rate locally assembled mobile phones, electric motorcycles, electric bicycles, and solar lithium-ion batteries.

Excise Duty Act (Cap. 472)

• Services over Digital Platforms: Classifies excisable services offered in Kenya by non-residents through digital platforms under Section 5.
• Adjusted Rates: Sets specific excise duties in the First Schedule, including:
  • Motorcycles: 10% of the value or KSh 12,952.83 per unit, whichever is higher.
  • Cigarettes with filters: KSh 4,100 per mille.
  • Liquid nicotine for electronic cigarettes: KSh 70 per millilitre.
  • Coal: 5% of value or KSh 27,000 per metric ton, whichever is higher.
  • Fees charged by digital lenders: 20%.

Miscellaneous Fees and Levies Act (Cap. 469C)

• Import Declaration Fee: Reduces the import declaration fee under Section 7 from 2.5% to 3.0% (amended from 'two point five' to 'three').
• Eco Levy: Section 7B introduces an eco levy on locally manufactured or imported goods listed in the Fourth Schedule.

Tax Procedures Act (Cap. 469B)

• Relief for Unpaid Tax: Section 37E is inserted to authorize the Commissioner, with prior written approval from the Cabinet Secretary, to refrain from recovering or to abandon unpaid taxes in cases of hardship or impossibility of recovery.
• Electronic Tax Invoices: Mandates all businesses to issue and maintain electronic tax invoices containing specified structured information.

Other Acts Amended

• Affordable Housing Act (No. 2 of 2024): Section 54 is amended to prohibit purchasers of affordable housing units from selling or agreeing to sell their units or any interest therein without the prior written consent of the Board.
• Industrial Training Act (Cap. 237): Section 5B is amended to mandate the KRA Commissioner-General to assess and collect training levies from employers.
• Data Protection Act (Cap. 411C): Section 51 is amended to exempt processing of personal data from data protection principles if the disclosure is necessary for tax assessment, enforcement, or collection.
• Public Finance Management Act (Cap. 412A): Section 194 is amended to mandate the Accounting Standards Board to prescribe accrual accounting and risk management frameworks for Government entities.
• Kenya Revenue Authority Act (Cap. 469): Amends the First Schedule to adjust KRA's revenue collection mandates.

New Obligations

• Motor Vehicle Tax Remittance: Insurers must collect motor vehicle tax and remit it to the Commissioner within five working days after issuing an insurance cover.
• EPZ Reporting: Export Processing Zone enterprises must submit annual returns and business accounts under Section 52B of the Income Tax Act.
• Integration of Systems: Taxpayers must integrate their electronic tax invoice systems with the KRA system upon written notice from the Commissioner.

Penalties

• Insurers' Non-compliance: Insurers who fail to collect or remit motor vehicle tax face a penalty equivalent to 50% of the uncollected tax plus the actual uncollected tax amount.
• Withholding Agent Defaults: Persons failing to withhold tax or remit withheld VAT by the fifth working day commit an offence and face a penalty of 10% of the amount involved.
• Integration Default: Failure to comply with an electronic tax system integration notice attracts a penalty of KSh 2 million for every month or part thereof that the failure continues.
• EPZ Filing Defaults: EPZ enterprises failing to submit tax returns face a penalty of KSh 20,000 per month for every month of default.