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Kenya Budget 2024

Key proposals that may need a rethink before passing the Finance Bill 2023 into law

by Fredrick Kimotho

The Finance Bill, 2023 (“The Bill”) was tabled in the National Assembly on 04 May 2023 for the first reading. Dubbed as probably the most radical Bill in the last decade by some tax experts, the Bill has significant proposals that may greatly affect individuals and businesses alike. Flipping through the Bill, it paints a picture of a government that is keen to increase tax revenues by deepening the tax base with several proposals pointing to the direction of expanding the net. It also paints some level of urgency in ensuring that the taxes hit the exchequer at the earliest. 

This is the first Bill under the new regime that is grappling with several challenges including global economic slowdown, swollen public debt, an almost irreparable high cost of living and tackling corruption. The new regime is thus not expected to conduct business as usual hence the need to explore unfamiliar territories. The Bill has a raft of positive measures, such as removal of Value Added Tax (VAT) on exported services and streamlining of the refund process, that will certainly support businesses and in turn spur growth. Some of the proposed tax measures may, however, have a detrimental impact on the economy in the medium to long term. 

Cost of living expected to rise further  

First, the Bill proposes to increase the VAT rate on petroleum products from 8% to 16%.  The reduced VAT rate of 8% was introduced in 2018 after being postponed several times on account of high cost of living. Considering the already high oil prices, the depreciation of the Kenya shilling and Kenya’s high dependency on fossil fuel, the move to increase the VAT rate to 16% is expected to, in a significant way, increase the cost of living. 

Secondly, the Bill proposes to change the VAT status of fertilizer and all inputs and raw materials used by manufacturers of fertilizer from zero rated to exempt. VAT exemption is expected to increase the cost of fertilizer as the suppliers are restricted from deducting input VAT. This move will certainly be against the government’s agenda of reducing the cost of food production in a bid to arrest the skyrocketing cost of living. 

Top income earners to feel the pinch

Thirdly, the Bill proposes to increase the highest rate of tax for individuals earning above KES 500,000 per month to 35% from the current 30%. This proposal will see the impacted individuals pay, which is already ravaged by inflation, shrink further. By way of illustration, individuals earning more than KES 600,000 will have to cede, at least, KES 5,000 per month to the government with effect from July 2023. This comes at a time when the government is also proposing to increase the National Housing Insurance Fund (NHIF) mandatory contributions for salaried workers from the current contribution of between Sh150 and Sh1,700 depending on their monthly pay to a flat rate of 2.75% of the salary. The new NHIF rate will see anyone earning above KES 500,000 pay at least KES 13,750 translating to KES 165,000 per annum. The proposal will certainly reduce the disposable income of the top earners and may also dampen thegovernment’s effort to make Kenya attractive for skilled international workers and sole proprietors. 

Fourthly, and related to the above, the Bill proposes to introduce a 3% contribution to the National Housing Development Fund (NHDF) by both the employer and employee. While this could be seen as a welcome move assuming that the fund will benefit many Kenyans who are desirous of owning a house but are limited by the ability to save and construct, the proposal is likely to overburden the already burdened employers effectively leading to loss of jobs and freeze of employment. 

From an employee perspective, this is expected to further reduce the employee’s disposable income and may be seen as an unnecessary burden to those who are not willing to own a house through this route. Based on this, it is advisable that the government makes this contribution optional as opposed to mandatory and provides clear incentives to encourage participation.  

Expanding the tax base

Five, the Bill proposes introduction of withholding tax on payments made to digital content creators at the rate of 15%. The withholding tax is a form of advance tax that the digital content creators can offset against their tax liability for the year. This is a welcome move as it seeks to expand the tax base by ensuring that all business income that is derived from or accrued in Kenya is taxed accordingly. Nonetheless, the withholding tax rate is considerably high compared to the rate of 5% for services and assumes that the digital content creators earn a profit margin of 50% or more. It will be prudent for the government to consider a lower rate. 

Six, the Bill proposes to increase the turnover tax rate from the current 1% to 3% and also capture more micro enterprises by reducing the minimum threshold from KES 1 million to KES 500,000. Further the Bill proposes to cap the applicability of turnover tax to persons with turnover of KES 15 million from the current KES 50 million. The reduction in the rate and review of the thresholds were made recently. The frequent changes accentuate the unpredictability of Kenya’s fiscal environment and the uncertainty that businesses have to grapple with. 

Pay to play

Finally, the Bill proposes to introduce a requirement for taxpayers to deposit 20% of disputed tax with the Commissioner before they file an appeal at the High Court against a decision of the Tax Appeals Tribunal (TAT). A similar proposal that required 50% deposit was shot down by National Assembly in 2022 majorly on account of the same being unconstitutional and a key impediment to taxpayer’s access to justice and right of appeal. It is not clear why the policy makers would seek to reintroduce the same provision barely one year later. Besides being unconstitutional, if passed the proposal is likely to heavily impact negatively the gains that Kenya has made in revamping the tax dispute resolution mechanism. Experience in countries with similar provisions shows that it encourages revenue authorities to issue inflated assessments resulting in unnecessary burden to taxpayers.


Besides the above measures which I have singled out in this article, the Bill has other myriad of changes that will require some panel beating or withdrawal all together before the Bill is passed into law. In the words of Frederick the Great “No government can exist without taxation. This money must necessarily be levied on the people; and the grand art consists of levying so as not to oppress”, let us have the spirit of this quote in mind as we exercise our right to public participation. 

Fredrick Kimotho is a Senior Manager with Deloitte East Africa. The views presented are his own and not necessarily those of Deloitte. He can be reached at

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