The Finance Act, 2017 was assented to on 21 June 2017. With the turn of the New Year, all provisions of the Act have now come into force. This alert highlights the provisions of the Act that came into force on 1 January 2018.
ENHANCEMENT OF PAYE TAX BANDS: MORE MONEY IN EMPLOYEES’ POCKETS
For the second year in a row, the Government has expanded the individual PAYE bands by 10%. The changes will provide a welcome cushion to taxpayers whose income has been adversely affected by inflation and political upheaval that was experienced in connection with the 2017 General Election.
Similarly, personal relief has increased by 10% from KES 15,360 p.a. to KES 16,896 p.a. From this year, low income earners will experience reprieve following the increase of the lowest taxable income from KES 12,260 per month to KES 13,486. In effect, only workers who earn more than KES 13,486 per month will be subject to income tax.
EXCISE DUTY: CATERING FOR INFLATION
For excise duty, the Cabinet Secretary for National Treasury is now empowered to make an inflationary adjustment of any specific excise duty rate every two years and not annually as earlier provided in the Excise Duty Act. This biennial adjustment is a welcome move that seeks to provide certainty for producers and consumers of excisable goods alike.
AMENDMENTS TO THE TAX PROCEDURE ACT 2015 (TPA)
Where a non-resident person without a permanent establishment conducts business in Kenya, such non-resident person is required to appoint a tax representative to perform any tax obligation imposed by law including filing tax returns and paying for tax. The TPA now provides that the Personal Identification Number (PIN) registration of the tax representative shall be in the name of the non-resident person being represented.
Where the tax representative has been appointed for more than one non-resident person, the tax representative is required to have a separate registration for each non-resident person. This will enhance tax efficiencies for the KRA. Additionally, the tax liabilities include any late payment interest and or penalty payable in respect of the liability.
TAXATION OF BETTING AND GAMING SECTOR
By the turn of the year, the taxes applicable for betting, lottery, gaming and competition companies have been amended from the former rates of 5%, 7.5%, 12% and 15% to a uniform tax rate of 35%. This tax is in addition to the normal corporation tax of 30%, making the effective tax rate for this sector 65%. This has already led to considerable furore among industry players within the first few days of the New Year. Click here to read our earlier alert on the betting and gaming sector.
ISLAMIC FINANCE: INCLUSION INTO THE MAINSTREAM ECONOMY
The Act provided for various amendments relating to the inclusion of various definitions and Sharia compliant products in the substantive laws to facilitate the operationalization of Islamic financial products in Kenya. As from 1 January 2018, the following amendments come into force:
The Stamp Duty Act – stamping of a document in relation to a Sukuk arrangement is now exempt from stamp duty. Islamic financial arrangements can now compete with other conventional financial products in the Kenyan market.
The SACCO Societies Act – A provision in the Act amends the definition of “deposit-taking business” and “sacco business” under the SACCO Societies Act to include the principles of Islamic law for recognition of Sharia Compliant Savings and Credit Co-operative Organisations (SACCOs) in Kenya. In addition, the Cabinet Secretary in the Ministry of Trade, Industry and Co-operatives is empowered to make regulations providing for the licensing and supervision of SACCOs carrying out deposit taking business in compliance with Islamic law.
The Co-operative Societies Act – A provision in the Act seeks to recognise co-operative societies which adhere to the principles of Islamic law to be eligible for registration under the Co-operative Societies Act, provided that such society also observes the co-operative principles such as the voluntary and open membership, among others.
SPECIAL ECONOMIC ZONES
Special Economic Zone Enterprises are now exempt from export duty and Import Declaration Fees. In addition, goods imported for the construction of LPG storage facilities as approved by the Cabinet Secretary in the Ministry of Energy are also exempt from Import Declaration Fees and the Railway Development Levy.
AMENDMENTS TO THE TAX APPEALS TRIBUNAL ACT (the TAT Act)
The Tax Appeals Tribunal is now required to hear and determine an appeal within ninety days from the date the appeal is filed with the Tribunal. Previously, the Tribunal could extend the period for hearing and determining the appeal to up to sixty days if there were sufficient grounds to do so, during the period of one year from the date of its first sitting. This proviso was put in place to give the newly established Tribunal time to overcome any teething challenges. It is expected that the Tribunal now has sufficient capacity to hear and determine appeal cases within the stipulated timeline.
For any further information, please contact Daniel Ngumy.
The content of this alert is intended to be of general use only and should not be relied upon without seeking specific legal advice on any matter.