KRA Intends to Backdate New Taxes on Employees - Money Weekly

The last week of July is here marking an end to the seventh month of 2023. As many struggle to keep up with the rising cost of living, the Kenyan workers await with bated breath a crucial ruling from the Court of Appeal. 

Safaricom has introduced interest-free M-Pesa loans of up to Ksh100,000, borrowers are turning to digital loans to survive and the Kenyan shilling reached a historic low, surpassing the Ksh142 mark against the US dollar

As we do every Thursday, here's our summary of the top money news from the last seven days and what they mean for your pocket.

Employees are in for a Shock as KRA Intends to Backdate New Taxes from the Finance Act

The Kenya Revenue Authority (KRA) has stated its intention to retroactively collect taxes that were not deducted while the disputed Finance Act 2023 was under suspension if the Court of Appeal decides to lift the freeze order. This could pose a significant burden for salaried workers who were previously exempt from deductions in July.

Following Treasury Cabinet Secretary Njuguna Ndung'u's appeal to lift the orders that prevented the implementation of the revenue-raising bill, the Court of Appeal is expected to deliver its verdict on Friday, July 28.

“All officers are advised to read this circular and the specific provisions of Finance Act 2023. Further, officers are advised that the provisions of the Act shall come into effect on the dates specified in Section 1 of the Act. The Act provides the following effective dates July 1, 2023; September 1, 2023; and January 1st, 2024,” an internal memo circulated among KRA staff reads.

If the court lifts the orders, various provisions, including the introduction of a housing tax deduction equal to 1.5% of gross salary, matched by another 1.5% from the employer, will be enforced. 

These provisions were originally scheduled to take effect on July 1, 2023.

Read Also: How to Budget and Save a Lot of Money As an Employee

Safaricom Introduces Interest-free M-Pesa Loans of Up To Ksh100,000

Safaricom has introduced "Faraja," a zero-interest credit service that was initially blocked by the Central Bank of Kenya (CBK). This new service is set to disrupt the mobile loans market.

With Faraja, Safaricom's 32 million customers can now make credit-based purchases ranging from Ksh20 to Ksh100,000 through the Lipa Na M-Pesa platform. The loan doesn’t charge any interest and customers have 30 days to complete the payment for their purchases.

Faraja is a joint venture between Safaricom and EDOMx Ltd, a Kenyan financial technology firm, and Equity Bank.

The service is currently accessible at various merchant locations, including Naivas Supermarket outlets, Goodlife pharmacies, City Walk, and others.

Through Faraja, businesses can receive full payment for their products or services immediately when customers make a payment using the service.

Safaricom will facilitate EDOMx in offering the Faraja service to over 606,000 businesses on Lipa Na M-PESA. 

Read Also: Ksh100K Interest-Free Loan via M-Pesa Unveiled

Costly Imports as the Shilling Hits a New Low

On Wednesday, the Kenyan shilling reached a historic low, surpassing the Ksh142 mark against the US dollar. This decline indicates a worsening in the cost of living situation.

According to the Central Bank of Kenya (CBK), on July 26, the local currency was quoted at Ksh142.11 compared to Ksh140.34 on June 27, just a month ago.

Since early 2020, the Kenyan Shilling has experienced a consistent losing streak against the dollar, resulting in various economic challenges, notably higher import costs, which have had significant impacts on the economy.

The ongoing depreciation of the local currency is likely to escalate living expenses, placing an additional burden on households already grappling with high fuel and food costs.

Kenya heavily relies on imports of various goods, including petroleum, machinery, medicine, pharmaceutical products, vegetable oil, wheat, clothing, and shoes.

Conversely, exporters will benefit from a weaker local currency, as they receive more money when converting their foreign earnings into shillings.

This latest decline in the Shilling's value against the dollar coincides with the escalating conflicts between Russia and Ukraine, raising global concerns about inflationary pressures in the oil market. 

With Russia being the third-largest global oil producer, the situation adds further complexities to the economic landscape.

Read Also: Inflation is Your Biggest Enemy in 2023: 6 Smart Ways to Invest Your Money

KRA has Raised Taxes on Employee Benefits

The Kenya Revenue Authority (KRA) has delivered an unwelcome setback to workers by increasing the tax rate imposed on employers providing employee benefits.

The fringe benefits tax has been raised to 11% for the next three months, until September, due to the current high market interest rates. This marks the second consecutive raise since the April-June period.

The levy is imposed on certain benefits provided by employers to employees such as including cheap loans.

Read Also: Every Employees Nightmare: Loss of Income

New Vehicle Sales Experience a 12% Drop, Attributed to Rising Interest Rates and Pending Bills

During the first half of the year, new vehicle sales experienced a decline of 12.5%, with major dealers showing a varied performance.

According to data from the Kenya Motor Industry Association (KMIA), industry-wide orders dropped to 5,679 units compared to 6,492 units in the same period the previous year.

The majority of dealers, including Isuzu East Africa and Simba Corp, reported lower sales in the review period. CFAO Motors Kenya on the other hand, - formed from the merger of the former Toyota Kenya and DT Dobie - defied the trend and achieved higher sales figures.

During the review period, participants in the industry encountered several challenges. These included shortages of certain vehicle models, an increase in interest rates for customers obtaining financing from banks, and pending bills that the government was gradually settling.

Read Also: Factors to Consider When Choosing the Right Car for Your Lifestyle

Borrowers are Turning to Digital Loans to Survive

Amid challenging economic conditions locally and globally, more borrowers are turning to digital lenders, as indicated by the latest industry trends.

Digital lenders have seen a significant surge in customer numbers this year, with Tala, for instance, gaining over 800,000 new customers in the first six months of the current year. This represents a remarkable 114% increase compared to the same period in 2022.

The growing demand for loans has prompted over 400 digital credit providers to apply for licences to operate in Kenya, according to the CBK.

As of now, the official data reveals that the regulator has granted licences to 32 digital lenders to conduct their operations in the country.

Over the past decade, lending practices in Kenya have shifted to the digital space, and borrowing patterns have also evolved. Millions of borrowers now rely on mobile apps to access quick loans, despite some lenders charging high-interest rates.

Read Also: Kenya Digital Loans: The Good, the Bad and Horrifying

Other Money News

• According to Ezra Chiloba, the CEO of Communications Authority, startups possess the potential to drive up to 70% of Kenya's digital transformation. However, their progress is impeded by significant bottlenecks, including funding limitations and compliance constraints, leading to a majority of these startups shutting down within a year of their inception.
  
  Chiloba further highlighted that 15% of startups fall into the unpredictable category, facing low chances of survival. To address this critical issue, Chiloba suggested that startups, especially those in the fintech sector, should seek partnerships with investors from various industries. Such collaborations could help alleviate the challenges they encounter and improve their prospects of success in the competitive market.

• Fitch, a rating agency, has downgraded Kenya's credit rating to negative due to several concerning factors, including worsening macroeconomic conditions, external financing limitations, a decrease in gross international reserves, and a rapid depreciation of the national currency, the shilling.
  
  This downgrade is expected to portray Kenya as a risky prospect for potential lenders, potentially leading to challenges in securing loans from international financial institutions. As a result, investors may become more cautious and demand higher interest rates on Kenyan financial instruments to offset the perceived increase in the likelihood of repayment issues.