Taxation hits & misses ahead of Kenya’s national budget

Kenya's Finance Bill 2023 has sparked a variety of reactions as President Aruto presents his inaugural budget. The proposed bill includes several key changes that are stirring both support and opposition from various stakeholders. A recent discussion on CNBC Africa shed light on the wins and misses of the taxation reforms. Among the notable wins highlighted in the bill are the VAT exemption for liquefied petroleum gas, reducing the exercise duty on data and airtime, and lowering exercise duties for banks. These reforms aim to ease the burden on taxpayers and stimulate economic growth. The introduction of tax amnesty, where penalties and interest can be waived for taxpayers who have paid their principal taxes by a specified date, is another significant achievement of the Finance Bill. This move is designed to provide relief to individuals and businesses struggling with previous tax liabilities. Additionally, the reduction of tax on rental income from 10% to 7.5% aims to broaden the tax base and encourage compliance. The bill also proposes to exempt certain local manufacturers from excess duties to promote the manufacturing sector in Kenya. These measures are aimed at boosting local production and creating a more favorable environment for businesses in the country. However, some aspects of the bill have faced criticism, particularly the proposed increase in turnover tax from 1% to 3% and the reduction of the threshold from 500 Kenyan shillings to 15 million Kenyan shillings. While this move is seen as an effort to formalize the informal sector and improve tax compliance, there are concerns about the burden it may place on small businesses. Another contentious issue is the introduction of a 35% tax rate for individuals earning above half a million shillings. While this measure is expected to target high-income earners and increase government revenue, there are debates about its fairness and potential impact on the affected taxpayers. The mandatory 3% housing fund deduction has also raised objections, with some arguing that it should be voluntary rather than imposed on employees and employers. Concerns about affordability, accessibility, and restrictions on accessing the funds have been raised, highlighting the need for further clarity and flexibility in the implementation of this policy. The betting and gaming industry is also facing scrutiny under the proposed bill, with plans to increase taxes on winnings and widen the definition of taxable income. While these changes are aimed at boosting government revenue, there are uncertainties about the industry's sustainability and the impact of higher taxes on betting activities. Overall, Kenya's Finance Bill 2023 presents a mix of opportunities and challenges for taxpayers, businesses, and industries. The reforms outlined in the bill reflect the government's efforts to drive economic growth, enhance tax compliance, and secure additional revenue. As the bill undergoes review and potential amendments, stakeholders across the country will continue to voice their opinions and concerns regarding the proposed changes.