Final round of Finance Act 2023 taxes take effect on January 1

Advance tax rate for vans, pick-ups, trucks, prime movers, trailers, lorries to be effected on Jan 1

In Summary

• President William Ruto signed into law the Act on June 26, and the Act was subsequently gazetted on June 27, 2023.

• Majority of the tax measures took effect from July 1, including the impugned Housing levy.

President William Ruto assents to the Finance Bill, 2023 at State House on June 26, 2023
President William Ruto assents to the Finance Bill, 2023 at State House on June 26, 2023
Image: PCS

The final phase of implementation of Finance Act, 2023 measures will take effect on January 1, 2024.

President William Ruto signed into law the Act on June 26, and the Act was subsequently gazetted on June 27, 2023.

While the majority of the tax measures took effect from July 1, including the impugned Housing levy, few others took effect on September 1 while the rest will take effect on January 1, 2024.

Among them is the medical post-retirement relief which was enacted following amendments to Section 31 A of the Income Tax Act providing for tax relief for expenses incurred toward post-retirement medical fund.

“A resident individual who proves that in a year of income, a person has contributed to a post-retirement medical fund shall for that year of income be entitled to a personal relief in this Act referred to as post-retirement medical fund relief,” the amendment states.

The Act states that retirees will be entitled to 15 per cent of the amount contributed towards their medical fund or Sh60,000 (Sh5,000 per month), whichever is lower.

However, the Kenya Kwanza government has in its 2024-25 - 2026-27 Medium-term Revenue Strategy indicated that it will do away with some tax reliefs it deems to be counterproductive.

Currently, Kenyans enjoy personal relief, insurance relief, insurances related to persons with disabilities and mortgage relief which are aimed at among other things encouraging savings, reducing tax burden and increasing home ownership and purchase of insurance policies.

The government, however, thinks otherwise.

“Studies have shown that incentives may not be necessarily effective in influencing the taxpayers’ behaviour,” Treasury said.

“However, with the removal of personal relief, the low-income tax earners will be cushioned in line with the adjusted tax bands by creating a zero-rate tax band,” the treasury assured.

It remains to be seen whether or not the medical post-retirement relief will be among those to be done away with.

Another tax measure that will be effected on January 1, is the increase in the advance tax rate for vans, pick-ups, trucks, prime movers, trailers and lorries.

The tax will be increased from the current Sh1,500 per tonne of load capacity to Sh2,500 or Sh5,000 per annum whichever is higher. The current annual advance tax levied is Sh2,400.

The Finance Act, 2023 however provides exceptions for machinery intended for use in agriculture.

“Provided that advance tax shall not be imposed on the tractors or trailers used for agricultural purposes.”

Changes in advance tax will also apply to saloons, station wagons, minibuses, buses and coaches.

Owners will have to part with Sh160 per passenger per month (currently Sh60.0) or Sh5,000 per annum (currently Sh2,400), whichever is higher.

Landlords and landladies will have something to smile about as come January 1, residential income tax will be reduced from the current 10 per cent to 7.5 per cent.

“The rate of tax in respect of digital asset tax shall be three per cent of the transfer or exchange value of the digital asset,” the Finance Act further states.

The whole point of reducing the tax is to encourage the construction of affordable houses in line with the Kenya Kwanza manifesto which targets the construction of 250,000 housing units per year.

However, it’s important to note that Treasury has in its Medium-term Revenue Strategy for 2024-25 - 2026-27 indicated that it plans to harmonise the rental income tax rate with the Corporate Income Tax rate to address compliance in rental income tax.

Treasury noted that in 2022, it lost Sh27 billion due to non-compliance in residential tax remittance.

“In this regard, and to ensure fairness and equity, the government will review taxation of residential rental income and implement either or both of the following options; tax the residential rental income at the corporate rate and allow for expenses or retain the simplified tax regime but progressively increase the rate and allow deduction of at least 40 per cent of the revenue as expenses,” Treasury said.

Closely related to this is that come January 1, the government will effect a 10 per cent corporate tax on entities engaged in the manufacture of human vaccines from the current 30 per cent.

This is aimed at encouraging the local production of vaccines in the country and follows the March deal that saw Kenya seal a deal with Moderna to establish an mRNA manufacturing facility in the country.

Further, as of January 1, 2024, no tax relief deductions will be allowed unless transactions were conducted and involves generated via the government’s eTIMS.

The electronic Tax Invoice Management System (eTIMs) is an upgrade of the Tax Invoice Management System (TIMS).

The Kenyan Revenue Authority (KRA) unveiled the new technology to help Kenyan businesses transmit tax invoices in real-time and at their convenience.

In the Finance Act, of 2023, section 16 of the Income Tax Act was amended to make this a mandatory provision to all businesses.

“Any expenditure or loss where the invoices of the transactions are not generated from an electronic tax invoice management system except where the transactions have been exempted in accordance with the Tax Procedures Act 2015.”

The mandatory issuance of eTIMS-generated invoices was effected during the implementation of the second schedule of Finance Act, 2023 on September 1, 2023 through amendments to Section 23 of the Tax Procedures Act.

Businesses have until March 31, 2024, to onboard their businesses on the eTIMS portal for purposes of maintaining a stock record for any tax liabilities.

“Where an electronic tax I voice required to ascertain tax liability is issued by a resident person or the permanent establishment of a non-resident person, that invoice shall be generated through the system.”

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