globaltaxnews.ey.comSign up for tax alert emailsForwardPrintDownload | |||||||||||||||||||||||||||||||||||||||||||||||||||
22 June 2018 Kenya issues 2018/19 budget On 14 June 2018, Kenya's Treasury Cabinet Secretary presented the 2018/19 Budget (the budget). The theme of the budget, "creating jobs, transforming lives and sharing prosperity," underpinned the Government's Big Four agenda of boosting manufacturing activities, enhanced food and nutrition security, achieving universal health coverage and supporting the construction of at least 50,000 affordable houses by 2022. The following proposals were made by the Treasury Secretary through the Finance Bill, 2018. The dates the proposals come into effect are noted. The definition of what constitutes dividends has been enhanced in the Bill to include any amount paid by a company on behalf of its shareholder or a person related to the shareholder, such as debts or other obligations. Under the Bill, transfer pricing adjustments that result in additional taxable income or reduced losses are also deemed as a dividend distribution. The proposal seeks to ensure that there is no loss of revenue in regards to the distribution of dividends to shareholders. The Bill proposes a reduction in the compensating tax rate from 43% to 30%. Previously, the law required taxpayers to maintain a dividend tax account (DTA) to monitor the amount of dividends that could be paid without triggering compensating tax. The Bill proposes to levy the tax on any untaxed gains or profits, and effectively removes the requirement to maintain a DTA. Notwithstanding the reduced tax rate, this amendment may end up being more punitive during the transition as it does not take into consideration any past payments of tax. The Treasury Secretary proposes to introduce withholding tax on demurrage charges and insurance premiums (with the exception of premiums on aircrafts) paid to nonresidents at the rate of 20% and 5% respectively. The move is aimed at creating a level playing field for Kenyan business in the transport sector, as well as taxing revenues from the well-established and developed general insurance business. The Bill has clarified that the CGT is applicable on the transfer of property by general insurance business. The Bill has eliminated the turnover tax and introduced a presumptive tax for persons whose annual turnover does not exceed KES5 million. The presumptive tax is set at 15% of the value of a business. The tax, payable by resident persons issued with, or liable to be issued with a business permit or license by a county government will be due at the point of applying for the permit. Taxpayers may opt out of this regime by notice in writing to the Commissioner, in which case they revert to the usual provisions. It excludes management and professional services, rental businesses and incorporated entities. The tax is geared towards the Government's objective of expanding its tax base through taxation of the informal sector. In a bid to boost the manufacturing sector, the Treasury Secretary has proposed granting manufacturers a tax deduction of 130% of their total electricity expense subject to conditions set by the Ministry of Energy. In keeping up with its commitment to attract foreign investors; the Treasury Secretary seeks to introduce a preferential tax rate for investors. It is expected that more guidance on the specific conditions and deliverables will issued by the Treasury Secretary. The proposal under the Income Tax Bill, 2018 to introduce a 35% tax bracket for high income earners has been dropped. The Bill proposes the introduction of a contributory fund, the NHDF. The contribution will be made by both the employer and employee, each set at 1% of the employee's monthly earnings, to a maximum of KES5,000. The late submission of an individual return will attract a penalty of 5% of the amount of tax outstanding under the return or KES2k, whichever is higher. The Bill also introduces a late tax payment penalty of 20% and simple interest will increase to 2% from the current 1%.
The Bill proposes to extend the tax amnesty return filing date to 30 June 2019.The current tax amnesty covers the period ending on or before December 2017. Further, repatriated funds are to be excluded from provisions of the Proceeds of Crime and Anti-Money Laundering Act, 2009 and other Acts relating to the investigation of financial transactions. The uptake of the amnesty has not been good. The proposal therefore aims to give taxpayers a chance to declare income earned outside Kenya without being penalized, especially those who feared investigation. This provision appears to require to be backed by a substantive policy review and broader legal re-thinking in order to achieve its objective. The Bill has clarified that where a taxpayer has more than one tax representative, each representative shall be responsible for the tax obligation for which they have been appointed. With respect to filing a notice of objection, the Finance Bill proposes to allow a taxpayer to apply for an extension of time to pay the undisputed tax amount. This is a positive development as it will minimize financial constraint on taxpayer while allowing the taxpayer to submit a valid objection. The Bill proposes to introduce a late submission penalty for VAT and Excise duty at the rate of 5% of the tax payable subject to a minimum of KES10,000. For remissions of penalties and/or interest exceeding KES1.5 million, the Bill proposes that the Commissioner is to seek prior approval from the Treasury Secretary. If the amendment is enacted, the proposal may delay the process of remission of penalties and interest.
The list of exempt goods falling under the Part A of the First Schedule to the VAT Act, 2013, was expanded to include the following:
The list of exempt services falling under the Part B of the First Schedule to the VAT Act, 2013, was expanded to include the following:
The list of zero-rated goods falling under the Second Schedule to the VAT Act, 2013, expanded to include medicaments consisting of mixed or unmixed products for therapeutic or prophylactic uses put up in measured doses or in forms or packaging for retail sale. These include:
The VAT Act has been amended in Section 13 to include excise duty in the taxable value for purposes of determining VAT on cellular services. Provisions regarding unauthorized access to or improper use of tax computerized systems and interference with tax computerized systems have been deleted. This is covered under the Tax Procedures Act (TPA). The Bill proposes to decrease the inflation adjustment period from "every two years" to "once every year." With the increasing annual inflation, the Government is keen to increase revenues annually in line with the inflation rates. The Bill proposes to repeal Section 7(5) of Act to provide clarity on what qualifies for excise duty exemption. The Bill proposes to delete Section 21(1)(d). This Section currently provides that where a license has been suspended and the taxpayer has appealed the suspension, then by extension, the license is deemed cancelled. This is a positive development as the rejected appeal will no longer mean an automatic cancellation of the license. This ambiguity is removed. Section 23 has been repealed. The new section introduces instances when the Commissioner may suspend a license without notice, including if the taxpayer:
Section 38 is amended to introduce stricter penalties on the offense of undertaking excisable activities without a license. The proposed penalty is double the excise duty that would have been payable or KES5 million, whichever is higher. The Act is also amended to provide for forfeiture of plant or excisable goods for which an offense has been established. This is aimed at discouraging unlicensed persons from manufacturing or importing excisable goods and to curb counterfeits.
In a bid to make local products more competitive and protect the local industry from unfair competition, several customs proposals have been submitted to the East African Community (EAC) Ministers and once pre-budget consultations are finalized, they will be communicated through the EAC gazette and implemented from 1 July 2018. EAC Customs Management Act and EAC Customs External Tariff are undergoing comprehensive review and the final outcome will be communicated once agreed by the EAC Council of Ministers.
With the duty remission scheme, inputs and raw materials for pesticides manufacturers and assemblers of clean energy stoves will be relatively less expensive. This will effectively translate to competitiveness in the market and enhanced benefit by final consumers. The Bill proposes that sightseeing buses and overland trucks imported by licensed tour operators will be exempt from customs duty. The following proposals have been made by the Cabinet Secretary for the financial sector. All proposals come into effect on 1 October 2018 unless otherwise noted. The Bill has repealed Section 33B of the Act which gives the Central Bank of Kenya (CBK) power to enforce interest rate ceiling. The Act has been amended to provide for cancellation of registration of a co-operative society whose deposit taking license has been revoked under the Sacco Societies Act. The CBK Act has been amended to recognize the mortgage refinancing business, which the Government plans to establish as a vehicle for implementation of affordable housing.
The Act has been amended to reduce the penalties imposed on trustee for non-compliance in relation to submission of audited accounts for the scheme to the Chief Executive Officer (CEO) of the Retirement Benefits Authority (RBA) as below:
The Act has also been amended to introduce penalties to fund managers and administrators who fail to submit investment and contribution returns respectively to the CEO as follows:
The Act has been amended to empower the RBA to intervene in instances where an employer fails to remit contributions to the scheme by the due date. The RBA will be empowered to issue collection notices, levy penalties for late remittance and issuance of cessation orders. The Act has been amended to expand the process of verification of customer identity to include any business relationships and transactions with any natural and legal persons, legal arrangements or financial institutions from countries identified as posing a higher risk of money laundering, terrorism financing or proliferation by the Financial Action Task Force (FATF) or the Cabinet Secretary as a result of those countries ongoing substantial money laundering and terrorism financing risk. The Act has also been amended to include Sacco Societies Regulatory Authority (SASRA) among the supervisory bodies responsible for reporting any suspicious transactions encountered during normal course of their duties. The following proposals were also made by the Treasury Secretary in his budget statement, but did not necessarily filter through to the Finance Bill, 2018. The Act is to be amended to introduce enhanced financial controls and provide for investor protection in the sector. The Bill, aimed at dealing with inadequacies in consumer protection and unregulated lending in the financial sector, is currently undergoing stakeholder consultation before cabinet consideration.
The Government is working with private sector and development partners to introduce a National Credit Guarantee Scheme as a policy tool to direct credit to Micro, Small and Medium Enterprises (MSMEs). There is also a proposal to establish the Kenya Development Bank which will play a greater role in providing long term credit to MSMEs. Also, the Bill proposes consolidation of Uwezo Fund, Youth Enterprise Development Fund and Women Enterprise Development Fund into a stronger institution – Biashara Kenya Fund. The following proposals have been made by the Cabinet Secretary of the National Treasury through the Finance Bill, 2018. All proposals come into effect on 1 October 2018 unless otherwise noted.
The Act has been amended to include the Tourism Promotion Fund as one of the beneficiaries of the service charge on passengers departing by air from an airport within Kenya. Previously the beneficiaries were Kenya Airport Authority and the Kenya Civil Aviation Authority. The Act has been amended to empower the Cabinet Secretary for the National Treasury and Planning to issue regulations to designate an administrator for national public funds. This is aimed at ensuring efficient and effective management of public funds. The Act has been amended to align the definition of "Minister" to mean the "Cabinet Secretary" in line with the terminology used in the Constitution.
To Act has been amended to streamline the time of appeal as specified in Section 55 of the Tax Procedure Act and Section 13(7) of the Tax Appeals Tribunal Act. Time taken in alternative dispute mechanisms will be excluded in calculating the stipulated time for dispute resolution under both Acts. The Act has been amended to provide for a mechanism for collection of surplus funds from regulatory bodies and timely payment to the National Treasury.
Document ID: 2018-5789 | |||||||||||||||||||||||||||||||||||||||||||||||||||
