Taxation changes effected by the Kenya Finance Act 2019

THE FINANCE ACT 2019

The President assented to the Finance Act 2019 (The Finance Act) on 7 November 2019. This has brought into effect a number of changes in the Kenyan taxation regime.Below are some of the notable changes.

Taxation Changes Effected by the Finance Act 2019

Turnover tax has been reintroduced and will be payable at the rate of 3% of the monthly gross receipts by resident persons whose gross receipts does not exceed or is not expected to Kshs 5 million in an year with the return and payment due by 20^th of the month following the tax period – Effective 1^stJanuary 2020
Late Payment of all income taxes will attract a penalty of 5% save for PAYE. This is a reduction from the previous 20%- Effective 7^th November 2019
Section 20 of the income tax act has been amended by extending Income tax exemption to investee companies of REITs-Effective 7^th November 2019
Companies implementing projects under the affordable housing program have been excluded from interest deductibility restrictions because of thin capitalization- Effective 1^st January 2020
The Act has introduced a reduced corporate tax rate of 15% to any company operating a plastics recycling plant. The rate will be applicable for the first five years from the year of commencement of the company’s operation-Effective 7^th November 2019
The affordable housing relief under the ITA to be computed at 15% of the employee’s contribution and not the gross emoluments as currently provided- Effective 7^th November 2019

The Finance Act has amended Section42A of the Tax Procedures Act (TPA) to reduce the withholding VAT rate from 6% to 2%.-Effective 7^thNovember 2019
Introduction of excise duty on betting activities at 20% of the staked amount- Effective 7^th November 2019
Introduction of excise duty on imported gas cylinders at the rate of 35%- Effective 7^th November 2019
Taxation of Digital Economy; the CS National treasury will give guidelines with regards to taxation of digital economy- Effective 1^st January 7, 2020
VAT exemption of plant, machinery and equipment for the construction of plastic recycling plants- Effective 7^th November 2019
Any income that is exempt under the Income tax Act will now be excluded from the compensating tax regime- Effective 7^th November 2019
Interest income accruing from all listed bonds, notes or other similar securities used to raise funds for infrastructure, projects and assets defined under Green Bonds Standards and Guidelines, and other social services has now been added in the list of incomes exempt from tax
The Act has amended Paragraph 13 of Eighth Schedule to the Income Tax Act by introducing CGT exemptions on the transfer of property that is necessitated by a transaction involving the incorporation, recapitalization, acquisition, amalgamation, separation, dissolution or similar restructuring of a corporate entity as a result of:
a legal or regulatory requirement;
a directive or compulsory acquisition by the government; or
an internal restructuring within a group which does not involve a transfer to a third party
The First Schedule to the Income Tax Act has been amended by including an amount withdrawn from the National Housing Development Fund to purchase a house by a first-time home-owner in the list of incomes exempt from tax.- Effective 1^ST January 2020
The Income Tax Act has been amended by introducing withholding tax at 5% on non-resident reinsurance premiums (excluding reinsurance premiums paid for insurance of aircrafts)-Effective 7^th November 2019
Imported services- Any person who imports a service will be required to self-charge and account for VAT of the imported services- Effective 7^th November 2019
A general penalty of Kshs 2 Million or a 2 year jail term has been introduced for any person who contravenes provisions of the Excise Duty Act an where no penalty is specified- Effective 7^thNovember 2019
The Act has amended Import Declaration Levy (IDF) and Railway Development Levy (RDL) rates as follows:

IDF on goods imported for home use has been increased from 2% to 3.5%; RDL on goods imported for home use has been increased from 1.5% to 2%; and
IDF and RDL shall be 1.5% on the following goods:
Raw materials and intermediate goods imported by manufacturers approved by the CS for the National Treasury on recommendation of the CS responsible for matters relating to industry.
Input for the construction of houses under an affordable housing scheme approved by the CS for the National Treasury on recommendation of the CS responsible for matters relating to housing.-effective 7^th November 2019

Excise duty on imported motor vehicles of cylinder capacity exceeding 1500cc of tariff heading 87.02, 87.03 and 87.04 has been increased from 20% to 25% while that of Motor vehicles of tariff no. 8703.24.90 and 8703.33.90 has been increased from 30%to 35%. Excise duty on 100% electric powered motor vehicles of tariff no. 8702.40.11, 8702.40.19, 8702.40.21, 8702.40.22, 8702.40.29, 8702.40.91, 8702.40.99 and 8703.80.00 has been reduced from 20% to 10%- Effective 7^thNovember 2019
The Act has amended Section 2 of the EDA to define the following terms for purposes of exemption of excise duty on official aid funded projects:

Official aid funded project” means a project funded by means of a grant or concessional loan in accordance with an agreement between the Government and any foreign government, agency, institution, foundation, organization or any other aid agency.
“Concessional loan” means a loan with at least 25% grant element. – Effective 7^thNovember 2019

Harrison Mburu

Tax Department

Ronalds LLP

THE FINANCE ACT 2019

Taxation Changes Effected by the Finance Act 2019

Harrison Mburu

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