Summary of Finance Bill 2024 and Its Impact on Your Pocket

The Finance Bill 2024 proposes to introduce several changes in Kenya’s tax regime - as a way for the government to raise its domestic revenue collections. 

Here is a summary of the proposed changes and their potential implications for your money.

Motor Vehicle Tax

The government is planning to introduce a motor vehicle tax, which will be charged at 2.5% of the value of the car annually.

What it means: For instance, if your car is valued at Ksh1 million, you will have to pay Ksh25,000 a year. These contributions are capped at Ksh5,000 on the minimum and Ksh100,000 on the maximum. This is to say, if your car is valued at Ksh100,000, you will still pay Ksh5,000 while all cars valued at Ksh4 million and above will pay Ksh100,000. 

How it will be collected: The tax will be collected by insurance firms. Hence, you will pay this tax when applying for insurance coverage. 

Exempted vehicles:

• Government (national and county) vehicles, 
• Kenya Defence Forces vehicles, 
• National Police Services vehicles
• National Intelligence Services vehicles

The proposal has not outlined who is responsible for providing the valuation for vehicles insured with third-party cover.

Implications

The proposed tax will significantly increase the cost of owning a vehicle in Kenya. It may also see an increase in fares as public transport businesses will likely pass on the extra costs to their customers. 

Excise Duty

Internet and social media advertisement

The bill proposes the introduction of a 15% excise duty on internet and social media advertisements relating to prize competitions, lotteries, gaming, betting, and alcoholic beverages.

• Implication: The 15% excise duty is likely to see an increase in advertisement costs related to the above products. 

Other Excise Duty Rate Changes

Money Transfer Services

The government intends to increase the excise duty charged on money transfer services from 15% to 20%.

• Implication: The increase in excise duty will likely see you paying more when transacting your money through banks, M-pesa, and money transfer agencies.

VAT For Specific Goods and Services

The proposed bill has also changed the VAT (Value Added Tax) status of some products and services. The notable ones are those that will move from being exempt to being charged at the standard rate. 

The following products are proposed to be removed from the list of VAT-exempt products to be charged the 16% standard rate.

• Gluten and unleavened bread (President William Ruto on Monday, May 14, directed Treasury CS Njuguna Ndung’u to work with the National Assembly in removing this proposal)
• Pressure-sensitive adhesive
• Plain polythene
• Supply of denatured ethanol
• Services for use by the local film producers 

Implication: The graduation is likely to see the prices of these products rise.

VAT Registration Threshold 

The bill proposes raising the VAT registration threshold from Ksh5 million to Ksh8 million.

• Implication: The VAT threshold has been in place for a long time. Since inflation has grown significantly, hence the increase in threshold is overdue.

KRA and the Data Protection Act

The proposal also seeks to amend the Data Protection Act to allow for the processing of personal data for the purposes of tax assessment, enforcement, and collection.

• Implication: This amendment will allow businesses to collect and process personal data in fulfillment of their obligations to the Kenya Revenue Authority (KRA).

Zero-rated e-Mobility

Last year, e-mobility products were zero-rated, that provision is proposed to be repealed in the current proposal. This will see electric bicycles, solar and lithium-ion batteries, and electric buses slapped with a 16% VAT.

• Implication: The proposal, if enacted, is likely to result in increased costs for related products including solar energy accessories, electric bikes, and electric vehicles. 

Tax-Deductible Pension Contributions

The bill proposes to raise the monthly limit for tax-deductible pension contributions from Ksh20,000 to Ksh30,000, making such contributions tax-free. However, any contributions exceeding this limit, or 30% of the employee’s pensionable income, or Ksh360,000 annually, would be subject to income tax.

• Implication: It's anticipated that this change will encourage Kenyans to save more towards their retirement through the increased tax-free pension contribution allowances.

Income Earned From a Digital Marketplace 

The bill suggests that online platforms and marketplaces withhold 5% of earnings from residents and 20% from non-residents. This proposal also considers income paid by digital platforms in relation to digital content, services, goods, and property as income earned in Kenya.

• Implication: According to experts, the proposal could potentially lead to resistance, particularly from non-residents who don't generate income within Kenya, as it imposes an extra compliance obligation on them.

Contributions Deductible for Tax Purposes

The bill suggests incorporating the following as deductible expenses when calculating an individual's taxable income.

Allowable expenses under the bill:

• Contribution to Social Health Insurance Fund by Kenyan households and long-term non-Kenyan residents in Kenya.
• Employer deductions for Affordable Housing Act, 2024.
• Contribution to post-retirement medical fund, capped at 10,000 shillings per month.

Implications: If enacted, contributions to the Social Health Insurance Fund, post-retirement medical fund, and the affordable housing levy will be deductible for tax purposes, which allows taxpayers to fully benefit from the tax advantages of their contributions.

Weekends and Public Holidays

There is a proposal to exclude weekends and public holidays from undertaking tax-related activities such as submitting tax returns, notices, and other documents, and payment of taxes.

Wrapping Up

These are the proposed changes in the Finance Bill 2024. The government is seeking to raise more revenue from domestic taxes. The proposals, however, are subject to public participation with Kenyans being encouraged to share their feedback to their representatives in Parliament on the contents of the proposed law.