Deloitte Kenya Finance Bill 2024

Nairobi, Kenya, 20 May 2024 – Deloitte has today hosted an informative and engaging briefing session to analyse the Finance Bill, 2024 (“the Bill”). The session provided an opportunity to delve into the proposed changes by unpacking them for deeper analysis. The Bill introduces significant reforms in taxation policies, and our Insights publication provides a detailed analysis of the specific measures.

The Bill was published on 9 May 2024 and tabled before the National Assembly on Monday, 13 May 2024. The Bill proposes various amendments to the Income Tax Act, the Value Added Tax Act, 2013, the Tax Procedures Act, 2015, the Tax Appeals Tribunal Act, 2013, the Excise Duty Act, 2015, and the Miscellaneous Fees and Levies Act, 2016, among other Acts of Parliament.

The proposed amendments will have notable economic and fiscal impacts. Commenting on the proposed tax measures, Fredrick Omondi, Deloitte East Africa Tax and Legal Leader, noted, “Broadly, the Finance Bill 2024 continues the trend witnessed last year with new taxes as well as increases in existing taxes as the Government attempts to collect more. However, these measures that increase the tax burden raise significant concerns as they will have the impact of reducing purchasing power and increasing the cost of doing business which will be negative for the mwananchi and the economy at large. The frequent changes in tax policy also create more risks for businesses and make it costlier for taxpayers to comply and does not augur well for our country. Whereas the drive to grow tax revenue as a percentage of GDP is understandable, the means of achieving this should not be through overburdening existing taxpayers and businesses with additional taxes, but rather greater focus on enhancing compliance and growing the economy to improve incomes and thereby generate higher taxes.”

Reflecting on the some of the key Finance Act 2023 changes, Fredrick Kimotho, Deloitte East Africa Tax and Legal Senior Manager, noted that there is need to relook at some of the measures introduced via Finance Act 2023 that have brought about significant challenges. Key among them include the imposition of e-TIMs as a condition for deductibility of expenses, abolition of waiver of penalties and interest, frequency of remitting withholding tax to the Kenya Revenue Authority (KRA), tax burden on employee occasioned by introduction of Affordable Housing Levy at the rate of 1.5% of gross emoluments, Social Hospital Insurance Fund at the rate of 2.75% of the gross pay, new tax bands at the rate of 32.5% and 35% and increase in the National Social Security Fund (NSSF) contributions all at the same time. On e-TIMs, specifically, Fred recommended a deferral of implementation of the provision restricting deductibility of expenses that are not supported by invoices that are generated through e-TIMs citing underwhelming taxpayer compliance (22%), lack of sufficient training, government bodies yet to be onboarded among other challenges.”

"Despite the target for Kenya to become less debt-reliant, the proposed imposition of levies on essential household items, against the backdrop of inflation-impacted salaries and wages, would result in a decline in private consumption. With prices of household necessities estimated to increase by as much as 80%, we expect to see a re-prioritization of household expenditure away from non-essential consumption, thereby negatively impacting the forecasted 5.0% growth in GDP,” said Gladys Makumi, Deloitte East Africa Financial Advisory Leader.

Regarding Excise duty, miscellaneous fees and levies proposed in the Bill, Peter Njenga, Deloitte East Africa Tax and Legal Senior Manager, noted, “The Bill proposes a raft of measures aimed at discouraging consumption of certain products with negative externalities as envisioned under the Medium-Term Revenue Strategy. Some of these measures include taxation of alcoholic beverages based on the alcohol content, harmonisation of excise duty on cigarettes and confectionery and introduction of excise duty on coal.

The proposal to tax alcoholic products based on content of pure alcohol will see a reduction of excise duty on alcoholic products with low alcohol percentage by volume such as beer and an increase in excise duty on spirits and wines with high alcohol content.

The introduction of eco levy on various office equipment, smartphones and computers will reduce affordability of these commodities, increase the cost of doing business and negatively impact the welfare of the local mwanachi. The Government should perhaps consider other tax and non-tax measures that will incentivise responsible waste management.

The increase in excise duty on financial transactions coupled with proposed introduction of VAT on certain financial transactions will have a negative impact as it adds to the cost of transacting business or making payments and would make our environment uncompetitive. It would also amount to double taxation as one would pay tax on purchasing products and services and at the same time incur tax when settling their bills in relation to the said products and services.”

Commenting on the Advance Pricing Agreement (APA) that has been proposed by the Bill, Doris Gichuru, Deloitte East Africa Tax and Legal Partner noted “The Finance Bill 2024 proposes to introduce Advance Pricing Agreements (APAs). This is a mechanism that allows Multinational Enterprises (MNEs) involved in intercompany transactions to agree the appropriate mechanism for determining the transfer prices with the revenue authority prior to the transactions happening. It is a very welcome move and long overdue considering that Kenya introduced transfer pricing regulation in 2006.  

If well implemented, the APA process will provide certainty on the operation of MNEs by enabling such companies to enter into binding agreements with the revenue authority on the determination of transfer prices and reduce tax disputes. APAs contrasts with traditional audit techniques that is used by the revenue authority to examine whether transactions, which have already taken place, have been priced appropriately. The later approach has resulted in protracted audits on the operations of MNEs in Kenya with some transfer pricing audits taking between 2-5 years to resolve. A comprehensive APA program will therefore provide certainty, increase tax compliance and ensure resources involved in intensive transfer pricing audits are deployed to other initiatives by both the MNE and revenue authority. 

APAs have become increasingly popular worldwide as they provide the MNEs and tax authorities with a win- win outcome by enhancing tax certainty and reducing base erosion and profit shifting. We expect that further guidance on the APA process including the documentation required and the administrative procedures will be issued because clarity on the process will encourage MNEs to adopt APAs.”

The Parliament via the Departmental Committee on Finance and National Planning has invited the public to submit comments on the Bill by 28 May 2024 before it is approved by Parliament and assented into law sometime in June. It is expected that the public participation and the debate in Parliament will lead to some changes in the Bill prior to its adoption into law. 

Read the full Deloitte Kenya Finance Bill 2024 Insights here. 

For more information contact:

Rebecca Berre-Yeri

Marketing and Communications Manager

Deloitte East Africa

Mobile: +254 719 039 033

Email:   rberreyeri@deloitte.com