Earlier this week, President William Ruto signed seven crucial bills into law, marking a significant step in overhauling Kenya’s tax and business landscapes. Among them were the Tax Laws (Amendment) Bill, Tax Procedures (Amendment) Bill, Business Laws (Amendment) Bill, and the Kenya Revenue Authority (Amendment) Bill. These reforms aim to simplify tax procedures, stimulate economic growth, and support local industries.
Other bills assented to include the Statutory Instruments (Amendment), Ethics and Anti-Corruption Commission (Amendment), and Kenya Roads (Amendment) laws, reflecting the government’s broader policy ambitions. Below, we break down the key highlights from the bills and what they mean for businesses and individuals.
1. The Tax Laws (Amendment) Bill
The Tax Laws (Amendment) Bill introduces several game-changing provisions:
- Significant Economic Presence (SEP) Tax: A 6% tax will now be levied on multinational firms operating in Kenya. This replaces the previous Digital Service Tax, reflecting global efforts to tax large corporations based on their economic footprint rather than physical presence.
- Mortgage Tax Relief: Kenyans seeking to own homes now have an increased deductible interest limit of KSh 360,000, up from KSh 300,000, easing the path to affordable housing.
- Affordable Housing and Retirement Benefits: Contributions to the Affordable Housing Levy and post-retirement medical funds are now tax-deductible, addressing concerns over double taxation. Pension benefits from registered funds are also exempt from tax upon retirement.
- Boost for Locally Assembled EVs: Locally assembled electric vehicles have been exempted from excise duty, promoting green energy adoption.
- Capital Gains Tax (CGT): Firms certified by the Nairobi International Finance Centre Authority will pay a reduced CGT of 5% instead of 15%. Additionally, the investment threshold for this benefit has been lowered to KSh 3 billion.
- Alcohol Taxation Reform: Excise duties on alcoholic beverages will now be based on alcohol content rather than quantity. This could increase taxes on spirits while reducing them for beer, aligning taxation with global best practices.
2. The Tax Procedures (Amendment) Bill
This bill clarifies procedures for issuing electronic tax invoices, addressing concerns raised by small businesses struggling with compliance. New requirements include clear invoice designations, supplier and purchaser details, and PIN numbers.
- Reverse Ticketing for Small Businesses: Businesses with turnovers below KSh 5 million can now issue tax invoices to simplify compliance.
- Protecting Local Steel Manufacturers: Import duties on certain raw materials have been reintroduced, shielding the local steel industry from cheap imports while fostering domestic production and job creation.
3. The Business Laws (Amendment) Bill
Aimed at reforming banking, credit provision, and investment in Special Economic Zones (SEZs), this bill introduces the following changes:
- Increased Core Capital for Banks: Banks must raise their core capital to KSh 10 billion from the current KSh 1 billion. The timeline for compliance has been extended to 8 years following intense lobbying from financial institutions. Non-compliance will attract hefty penalties of up to KSh 20 million or three times the financial gain derived from the breach.
- Regulating Non-Deposit Credit Providers: The Central Bank of Kenya (CBK) has been granted powers to regulate non-deposit-taking credit providers, including “buy now, pay later” services, to protect consumers from exploitative practices.
- SEZ Investment Flexibility: Cabinet Secretaries overseeing SEZs can now set minimum investment thresholds, allowing public entities to participate in SEZs. Investors are also assured of 10-year tax incentives, bolstering confidence in these zones.
4. The Kenya Revenue Authority (Amendment) Bill
This amendment enhances the operational capacity of the Kenya Revenue Authority (KRA):
- Appointments at KRA: The Commissioner-General can now appoint Deputy Commissioners with board approval, ensuring a more agile leadership structure.
- Relief for Statutory Managers: The Treasury CS is empowered to waive penalties for individuals who failed to remit taxes while under statutory management or receivership, recognizing challenges faced during financial distress.
Implications for Kenya
The passage of these bills reflects a deliberate effort to modernize Kenya’s tax regime and stimulate economic growth. The introduction of the SEP tax aligns Kenya with global trends in digital taxation, while measures like mortgage relief and EV tax exemptions support home ownership and green energy.
Reforms in the banking sector and SEZs promise to attract investment and enhance financial stability, even as local manufacturers gain protection from unfair competition through reintroduced import duties. However, the government must ensure effective implementation, especially in addressing compliance challenges for small businesses and fostering trust among investors.
As Kenya strides forward with these reforms, businesses and individuals must prepare to navigate the evolving regulatory landscape. For now, these laws signify a proactive approach to driving economic progress, ensuring equitable taxation, and fostering local industry growth.
