SHIF Deductions Postponed But More Taxes Coming in 2024 - Money Weekly

It is that time of the week again when we look at the news headlines over the last seven days and dissect those that can affect your money. 

Welcome to yet another edition of Money Weekly.

This week, 

• Health CS Nakhumincha pushed the commencement of SHIF contributions to July. 
• According to the 2024 Budget Policy Statement, Kenyans should brace for more taxes.
• Kenya has been grey listed by the global anti-money laundering watchdog
• KRA has reported that at least 227,071 taxpayers have benefited from the ongoing Tax Amnesty Program.
• Saccos have registered tremendous growth in 2023 and are giving high dividends and rebates to members.

For this and much more. Let’s dive in.

Brief SHIF Relief for Workers

Health Cabinet Secretary Susan Nakhumincha has deferred the commencement of Social Health Insurance Fund (SHIF) deductions to July. The deductions were planned to kick off in March.

She added that SHIF registrations will take place between March and July. Members previously registered to NHIF will register for SHIF afresh.

According to the CS, the new regulations have been rated between 75% and 80% by different stakeholders.

Some of the issues they are working to streamline in the SHIF regulation include: 

• There is not much clarity about the mean testing tool. The mean testing tool will be used to determine the required contributions for non-salaried members.
• Involvement of devolved units in the transition committee to oversee the transition from NHIF to SHIF.
• The classification of polygamous families as multiple households depending on the number of wives. This will see each household pay a 2.75% deduction. The Ministry of Health responded and said it was a move to bring equity.
• How long should it take before a spouse is removed from the health plan? The current regulations describe it as immediate. However, the lawmakers were asking for at least a six month period.

The ministry has also presented regulations requiring all adults over the age of 25 without a formal job to pay a mandatory Ksh300 for medical cover.

New Taxes Expected in 2024

Even as Kenyans are enjoying the brief relief from SHIF deductions, they should brace for more taxes coming their way.

The Kenya Kwanza government is working on other modifications to the taxation instrument to boost revenue collection and support economic activity. So far, the interventions have led to 5.6% economic growth in the first three quarters of 2023. This is better than 4.8% growth during the same period in 2022.

However, despite the economic growth, revenue as a percentage of Gross Domestic Product (GDP) remains low, at 16% and the Kenya Revenue Authority (KRA) failed to meet its collection target for the first half of the 2023/24 financial year by Ksh182.6 billion.

According to the 2024 Budget Policy Statement, the government aims to boost revenue collection to 20% of GDP by targeting collecting Ksh2.95 trillion in taxes.

Here are the expected changes in the taxation instrument.

• Excise duty on alcoholic beverages, cigarettes, and tobacco and sugar containing products is expected to go up.
• Review of the requirement on alcoholic drinks and beverages to pay excise duty within 24 hours after the drinks have left the stockroom. Excise duty is a consumption tax and not an advance tax.
• Review of the digital service tax (DST) to onboard residents. Currently, the tax applies to non-residents only. They are required to pay 1.5% of the gross transaction value for services offered digitally.
• Introduction of a 5% withholding tax on agricultural produce delivered to organised groups and corporations. 
• Progressive phasing out of preferential corporate tax rates and rationalisation of tax exemptions for both corporate entities and individuals.
• Re-introduction of a minimum tax, although it had been ruled unconstitutional. The government will consider the issues raised in the court ruling.
• Introduction of a carbon tax.
• Introduction of a high-net-worth individuals’ tax. Currently, there are two additional PAYE bands, 32.5% for those earning between Ksh500,000 and Ksh800,00 and 35% for those earning Ksh800,000 and above.
• Reduction of the VAT rate by 1%
• Adjustment of the VAT registration threshold from Ksh5 million to Ksh8 million.

KRA is also expected to intensify taxpayer audits, add more staff, and use technology to achieve its target. Furthermore, the government is expected to automate and streamline government services and integrate the system with KRA.

Kenya Grey-Listed For Suspicion of Wash Wash

The global anti-money laundering watchdog, the Finance Action Task Force (FATF), has put Kenya on the grey list for lack of compliance with international standards against money laundering and terrorism financing.

Being greylisted is a huge dent in a country’s reputation in the global financial system. The reputational damage could lead to reduced foreign direct investments and the downgrading of the country and businesses, which might increase the cost of accessing financing.

Kenya has been asked to do the following to be removed from the grey list.

• Conduct a complete terrorism financing assessment and present the results.
• Update national anti-money laundering and terrorism strategies
• Increase risk-based supervision of Designated Non-Financial Businesses and Professions such as dealers in precious metals and stones and real estate agents.
• Adopt laws for licensing and supervising cryptocurrencies and other virtual assets.
• Designate an authority for regulation trusts.

KRA Waives Ksh209bn Fines, Interest For Taxpayers

KRA has reported that at least 227,071 taxpayers have benefited from the ongoing Tax Amnesty Program. These taxpayers have been granted Ksh209 billion in waivers for accrued interests and penalties.

The programme started on September 1, 2023, and is expected to run until June 30, 2024. 

Taxpayers qualify for the programme after they pay the principal taxes they owe KRA. As a result, KRA has collected a total of Ksh14.5 billion. 

The taxman is urging taxpayers who have not filed their returns to do so to take advantage of the programme. Taxpayers with ongoing disputes are also requested to expedite the resolution of their cases within the amnesty period.

Saccos Defy Tough Times, Pay High Dividends

The Sacco sector has shown tremendous growth in 2023, hitting over a trillion in assets. Sacco members are the beneficiaries of this growth, as Saccos are giving higher dividends and rebates.

Here are the Sacco dividends released so far.

• Nyati Sacco - 21%
• Tower Sacco - 20%
• Ports Sacco - 20%
• Nation Sacco - 20%
• Kenya National Police DT Sacco - 17%
• Yetu Sacco - 19%
• Olin Sacco - 17.5%
• Winas Sacco - 16%
• Trans Nation Sacco - 15%
• Solution Sacco - 15%
• Mentor Sacco - 15%
• Capital Sacco - 15%
• New Fortis Sacco - 14%
• Harambee Sacco - 12%
• Harambee Sacco - 12%

Kenya Power to Charge Consumers in US Dollars

Kenya Power has received the necessary approval to charge consumers in dollars, euros, and sterling pounds. The utility company is in the process of opening accounts to enable customers who are willing and are able to pay in foreign currency to do so.

Additionally, Kenya Power is set to double the voltage on some power lines in Nairobi in a bid to reduce technical losses. In the first half of June 2023, Kenya Power losses increased by 23% and half of that was due to technical losses. By increasing the voltage, KPLC will reduce the current flowing through its power lines, which will result in reduced heat losses.

Furthermore, the state-owned power distributor has been increasing its revenue, resulting in a Ksh319 million profit in the half year period ending December 2023. This is a huge turnaround considering they incurred a loss of 1.1 billion in the same period the previous year.

Gas Prices Up By Ksh200 

A few weeks after the tragic Embakasi gas refilling station explosion, the government has launched a crackdown on gas storage and refilling depots. This has led to a shortage of refilled gas cylinders on the market. The shortage is pushing prices upward by as much as Ksh200.

This comes as the government is working to reach 4.5 million low income households with LPG cylinders. The government aims to increase LPG consumption from 7.5kg to 15kg per capita, per year. This will see LPG penetration jump from 28% to 70% by 2028.

Import Levy Revenue Dips By Ksh7 Billion

Taxes collected on international trade and transfers fell by Ksh7 billion in the half year to December 2023. Both the Import Declaration Fee (IDF) and the Railway Development Levy (RDL) fell by Ksh3.5 billion. 

This fall is attributed to tax cuts meant to stimulate local manufacturing by reducing the cost of imported raw materials. However, the depreciation of the local currency led to a slump in the value of imports.

Similarly, new motor vehicle sales dropped by about 15% due to weakening shilling and high interest rates. Dealers sold 11,370 units in the year ended December 2023, down from 13,352 sold the year before.

Tea Production Up By 15.2%

The production of tea from smallholder tea farmers under the Kenya Tea Development Agency (KTDA) increased by 15.2% to 763,208,762 kilos from 662,565,605 kilos in the period between June 2023 and January 31, 2024. Subsidised fertilisers and ample rains are some of the reasons attributed to the increase. Tea prices have also increased by Ksh4 per kilo in both the West Rift and the East Rift regions.

Whereas there is growth in the tea sector, the livestock sector is facing challenges with underinvestment. The sector remains underfunded despite growth in private sector investments. Investors have put in over $500 million (Ksh 73 billion) in agriculture since 2015 and only 10% of that went into livestock farming.

Other News in a Snapshot

Debt Swaps: Kenya plans to adopt debt swaps as a debt management strategy in an effort to avert a similar scenario to the one witnessed ahead of the Eurobond repayment, where investors were hesitant to await a clear repayment plan. The National Treasury will engage in debt swaps for food, medicine, and nature. This will ease the pressure since Kenya is set to pay more than Ksh8 trillion in debt over the next 10 years.

Easing Inflation: Reducing inflationary pressures in advanced economies has increased dollar inflows from Kenyans living abroad. In January, diaspora remittances were $412.41 million (Ksh 65.83 billion), the highest ever recorded. This also helped relieve some pressure on the Kenyan shilling.

Troubled Firms to Exit NSE: In a move to protect investors, the Capital Markets Authority (CMA) has approved the establishment of a recovery board on the Nairobi Securities Exchange (NSE) to aid struggling companies. Firms under the board that fail to recover after 24 months face delisting. Currently, 98 firms face insolvency.

Ignore Bond Paper Losses: Pension funds are now exempt from reporting bond price losses to members. The amendments introduced by the Retirement Benefits Authority (RBA) take note of challenges in reflecting accurate bond values amid rising inflation. 

Infrastructure Bond Shines: A government-issued infrastructure bond, sold recently on the Nairobi Securities Exchange (NSE), is trading at a 6% premium in the secondary market, indicating robust demand from investors enticed by higher tax-free returns.

Safaricom Shareholders: Safaricom announces a decrease in the interim dividend payout to shareholders of Ksh0.55 per share compared to Ksh0.58 per share last year. Despite expansion into Ethiopia, Safaricom's profitability has declined for the third consecutive year, while their share price has also experienced a continuous decline, dropping over 45% in the past 12 months.

Longhorn Ksh550 Million Orders: Longhorn Publishers anticipates a revenue boost of Ksh550 million from government contracts in the second half of its financial year. This will improve its financial performance after posting a widened net loss of Ksh193.2 million in the first half to December 2023. The publisher expects to earn at least Ksh815 million from government sales in the fiscal year ending June 2024, with Ksh128.8 million already recorded.

TV Advertising Reigns Supreme: Television advertising remains dominant in Kenya despite the rise of digital channels. TV ad spending stood at Ksh16 billion for July-September 2023, down 19% from last year. On the other hand, radio and print face declining audiences, impacting revenues. 

Fuliza Squeezes Rivals: Safaricom's Fuliza overdraft service has significantly impacted the microloans market segment, leading to competitors raising their loan sizes or exiting the market altogether. Competition Authority of Kenya (CAK) notes a decline in the number and total value of loans disbursed by competitors, with average loan sizes increasing notably.