FINANCE BILL 2024 IMPLICATIONS & ANALYSIS

The Kenyan Finance Bill 2024 proposes the introduction of several significant tax reforms and adjustments aimed at enhancing revenue
collection, aligning with international tax standards, and addressing various economic sectors. This report discusses the proposed
amendments, analyzes the current fiscal performance for FY 23/24 & the implications of the proposed changes on the various economic
participants.
VAT PROPOSED AMENDMENTS
Aviation Sector
Details Current Rate Proposed Rate Implications
Aeroplanes and other aircrafts on unladen weight exceeding 2,000 These proposals will likely result in an increase in
Exempt 16%
kgs but not exceeding 15,000 kgs of tariff number 8802.30.00 costs in the aviation sector, especially for
Spacecraft (including satellites) and suborbital and spacecraft persons involved in the hiring of aircrafts, to
Exempt 16%
launch vehicles of tariff number 8802.60.00
cater for the introduction of VAT.
Hiring, leasing and chartering of aircrafts excluding helicopters of
Exempt 16%
tariff numbers 8802.11.00 and 8802.12.00
Direction-finding compasses, instruments and appliances for
Exempt 16%
aircraft
Deletion of VAT exemption of 'all goods and parts thereof of Only aircraft parts
Exempt
chapter 88' and replacing it with 'Aircraft parts of chapter 88' will be exempt

Agriculture & Food Sector

Details Current Rate Proposed Rate Comments
The shift of these goods and services from standard
Tea packaging material
rated to exempt may signify a commitment by the
16% Exempt Government to promoting food security and enhancing
Micronutrients, foliar feeds and bio stimulants of Chapter 38 agricultural productivity by facilitating access to vital
inputs for agribusinesses.
The shift of these goods and services from zero rated to
exempt will impact the production costs and
consequently the final costs of these items as the
The supply of ordinary bread 0% Exempt
suppliers will no longer be in a position to claim input
VAT on the supplies and may opt to pass on the
irrecoverable VAT costs to the consumers.
All inputs and raw materials whether produced locally or
imported,
0% Exempt
supplied to manufacturers of agricultural pest control products
upon recommendation by the Cabinet Secretary for Agriculture
Agricultural pest control products 0% Exempt
The supply of gluten bread and unleavened bread Exempt 16% The standard rating of these goods and services will
likely result in the cost of sugarcane , gluten bread and
Transportation of sugarcane from farms to milling factories 0% Exempt unleavened bread

Tourism Sector
Details Current Rate Proposed Rate Comments
Taxable goods for direct and exclusive use for the construction of tourism In our view, the removal ofthe VAT
facilities, exemptions in the tourism sector is likely to
Exempt 16%
recreational parks of fifty acres or more, convention and conference dampen investment prospects in the sector,
facilities upon recommendation by the Cabinet Secretary for Tourism
despite tourism's substantial contribution
Specially designed locally assembled motor vehicles for transportation of
to the country's GDR
tourists,
purchased before clearance through Customs by tour operators upon Exempt 16%
recommendation by the competent authority responsible for tourism
promotion

Healthcare Sector
Details Current Rate Proposed Rate Comments
Taxable goods for the direct and exclusive use in the construction The exemption on taxable goods for the
and equipping of specialized hospitals with a minimum bed construction and equipping of specialized hospitals
Exempt 16%
capacity of fifty, approved by the Cabinet Secretary upon was introduced by the Finance Act, 2023. Healthcare
recommendation by the Cabinet
is amongst the Kenyan Governments Big 4 Agenda
Taxable services for direct and exclusive use for the construction of and is languishing behind in development terms
specialized hospitals with accommodation facilities upon Exempt 16% therefore it doesn’t seem pragmatic to be increasing
recommendation by the Cabinet Secretary for Health taxes in an area of growth beforehand.

Aviation Sector | Prepared by Victor J. Owuor

Details Current Rate Proposed Investment
Rate Analyst
Aeroplanes and other aircrafts on unladen weight exceeding 2,000 kgs but not exceeding 15,000 In our view,
Exempt 16% in an increa
kgs of tariff number 8802.30.00
 E-Mobility Sector
Details Current Rate Proposed Rate Comments
The supply of electric bicycles 0% 16% The zero-rating of these e-mobility related supplies was introduced by the Finance Act,
The supply of electric buses of 2023 in an effort to encourage the use of renewable energy within the transportation
0% 16% sector. The removal of this incentive could result in reduced growth within the e-mobility
tariff heading 87.02
The supply of motorcycles of sector and goes against the government's green agenda, or the government's
0% Exempt
tariff heading 8711.60.00 commitment to provide tax stability and not reverse laws on a yearly basis.

Renewable Energy Sector

Details Current Rate Proposed Rate Comments

Specialized equipment for the development and generation of Exempt until The Bill proposes to restrict the VAT exemption on the
solar and wind energy, including photovoltaic modules, direct the completion supply of specialized equipment for the development
current charge controllers, direct current inverters and deep cycle of and generation of solar and wind energy by limiting
Exempt
batteries that use or store solar power, until the completion of the the projects
projects under construction upon recommendation to the under such supply to the completion of the solar or wind
Commissioner by the Cabinet Secretary for Energy. construction project that is under development.
This may hinder the ability for developers to access
essential equipment during crucial stages of project
The supply of solar and lithiumion batteries 16% 0%
implementation, which in turn undermines the
transition to sustainable energy sources.

Manufacturing Sector

Details Current Rate Proposed Rate Comments

Plant, machinery and equipment used in the construction of
Exempt 16%
a plastics recycling plant.
Capital goods for promotion of investments in the
Exempt 16%
manufacturing sector
The supply of locally assembled and manufactured mobile The proposal to repeal the exemption granted to
phones Introduction of a definition of investors in manufacturing projects may dampen
'Original Equipment Manufacturer" to mean 'a investment prospects in the manufacturing sector.
0% 16%
manufacturer of parts and subassemblies who owns the The clarification of what constitutes an original
intellectual property rights in the parts or subassemblies' in
relation to locally manufactured passenger vehicles
equipment manufacturer appears to signify the
Only supplies from original Government's commitment to promoting the
Introduction of a definition of "Original Equipment
equipment manufacturers growth oflocal manufacturing.
Manufacturer" to mean 'a manufacturer of parts and
used in
subassemblies who owns the intellectual property rights in Exempt
the local manufacture of
the parts or subassemblies' in relation to locally
passenger vehicles will be
manufactured passenger vehicles
exempt.

Financial Services

Details Current Rate Proposed Rate Comments

Certain financial services including: The proposal to introduce
a. Issuance of debit cards; VAT on financial services
b. telegraphic money transfer services will make these services
c. foreign exchange transactions including the supply of more expensive and could
foreign drafts and international money orders negatively impact the
d. cheque handling, processing, clearing and settlement, growth ofthe banking and
Exempt 16%
including special clearance or cancellation of cheques; insurance sectors.
e. issuance of securities for money, including bills of
exchange, promissory notes, money and postal orders;
f. the assignment of a debt for consideration; and
g. the provision of the VATexempt financial services on
behalf of another on a commission basis.
Insurance & re-insurance premium 16% Ancillary services to insurance will be vatable at 16%

| Prepared by Victor J. Owuor

Investment Analyst
 Healthcare Sector
Details Current Rate
Taxable goods for the direct and exclusive use in
the construction and equipping of specialized
hospitals with a minimum bed capacity of fifty, Exempt
approved by the Cabinet Secretary upon
recommendation by the Cabinet
Taxable services for direct and exclusive use for the
construction of specialized hospitals with
Exempt
accommodation facilities upon recommendation by
the Cabinet Secretary for Health
Details Current Rate
Taxable goods supplied to persons that had an agreement
or contract with the Government prior to 25 April 2020
and the agreement or contract provided for exemption
from VAT.
Exempt
However, this provision was only applicable:
a. to the unexpired period of the contract or agreement;
b. upon recommendation by the Cabinet Secretary
responsible for matters relating to energy
Inbound international sea freight offered by a registered
0%
person
Betting, gaming and lotteries services Exempt
Services imported or procured locally for use by the local
film producers or local film agents certified upon
recommendation by the Kenya Film Commission, subject Exempt
to approval by the Cabinet Secretary for the National
Treasury
Goods imported or purchased locally for use by the local
filming agents, upon recommendation by the Kenya Film
Commission, subject to approval by the CS National
Treasury
All goods including material supplies, equipment,
machinery and motor vehicles, for official use by the
National Intelligence Service. 16%
This is in addition with such goods for official use by the
Kenya Defense Forces and the National Police Service
Pressure sensitive adhesive of tariff number 3506.91.00 Exempt
Plain polythene film/LPDE of tariff number 3921.19.10 Exempt
Plain polythene film/PE of tariff number 3921.19.10 Exempt
PE white 25-40gsm/release paper of tariff number
Exempt
4811.49.00
ADL 25-40gsm of tariff number 5603.11.00 Exempt
Musical instruments and other musical equipment
imported or purchased locally, for exclusive use by
Exempt
educational institutions, upon recommendation by the
Cabinet Secretary for Education
Inputs and raw materials used in the manufacture of
mosquito repellent on recommendation by the Cabinet 16%
Secretary responsible for Health
Bioethanol vapor (BEV) Stoves classified under HS Code
7321.12.00 (cooking appliances and plate warmers for 0%
liquid fuel)
Proposed Rate Comments
The exemption on taxable goods for the construction and equipping
of specialized hospitals was introduced by the Finance Act, 2023,
16%
however, the Act did not provide a definition for a 'specialized
hospital' which resulted in confusion as to the entities which qualify
for the exemption. Further, the Health Cabinet Secretary did not
issue guidelines to provide guidance on the same. Therefore, it
16% seems that the provisions will be repealed without having achieved
the intended impact on the healthcare sector.
Others
Proposed Rate Comments
This is likely a clean-up of the VAT Act as these projects have
most likely been concluded.
However, where there are ongoing projects covered under this
16%
provision, the proposal will negatively impact these projects
and will have negative implications on future projects as
investor confidence in the Government will be dampened.
The proposal will increase the costs of imports which
subsequently could lead to cost-push inflation as Kenya is a net
16%
importer and is heavily reliant on imports for many economic
activities
The introduction of VAT on these services will significantly
increase costs for players in a sector that is already heavily
taxed. Despite the government’s attempt to manage gambling,
16%
enacting such taxes may cause the betting firms to leave the
market due to over taxation and this has negative impact on the
economy as Betting firms employ people in the country
The proposal to subject all goods and services imported for the
local film industry will negatively impact the local film sector
16%
and goes against the governments agenda to create
opportunities for the youth.
The supply of goods to the National Intelligence Service will be
Exempt
exempt from VAT.
The introduction of VAT on these services will significantly
increase costs for players in a sector that is already heavily
16%
taxed. Further, the VAT Act does not provide guidance on what
the taxable value of the services will be.
16%
16%
16%
16%
This will impact educational institutions which offer music
classes as the introduction of VAT will increase the purchase
16%
and tutoring costs.
This is a welcome move in the fight against malaria as it will
Exempt
reduce the cost of production of mosquito repellents.
The importers of these stoves will be impacted as they will not
Exempt be in a position to claim the input VAT on the importation
| Prepared of J. Owuor
by Victor
these stoves. Investment Analyst
 Tariff No. Tariff Description Current Rate Proposed Rate
2523.10.00 Cement clinker 17.5% of the customs value 10% of the customs value
Semi-furnished products of iron non-alloy steel containing by weight,
7207.11.00 <0.25% of carbon; of rectangular (including square) cross section, the 17.5% of the customs value 0
width measuring less than twice the thickness
Bars and rods of iron or nonalloy steel, value hot-rolled, in irregularly
7213.91.90 wound coils of circular cross section measuring less than 14mm in 17.5% of the customs value 0
diameter; other measuring less than 8mm
4804.21.00 Sack kraft paper; unbleached 10% of the customs value 0
Other kraft paper and paper board weighing 150g/mA2 or less:
4804.31.00 10% of the customs value 0
Unbleached
4819.30.00 Sacks and bags having a base of a width of 40cm or more 10% of the customs value 0
4819.40.00 Other sacks and bags, including cones 10% of the customs value 0

Others
Details Current Rate
Taxable goods supplied to persons that had an agreement or
contract with the Government prior to 25 April 2020 and the
agreement or contract provided for exemption from VAT.
However, this provision was only applicable: Exempt
a. to the unexpired period of the contract or agreement; and
b. upon recommendation by the Cabinet Secretary
responsible for matters relating to energy
Inbound international sea freight offered by a registered
0%
person
Betting, gaming and lotteries services Exempt
Services imported or procured locally for use by the local film
producers or local film agents certified upon
Exempt
recommendation by the Kenya Film Commission, subject to
approval by the Cabinet Secretary for the National Treasury
Goods imported or purchased locally for use by the local
filming agents, upon recommendation by the Kenya Film
Commission, subject to approval by the CS National Treasury
All goods including material supplies, equipment, machinery
and motor vehicles, for official use by the National
Intelligence Service. 16%
This is in addition with such goods for official use by the
Kenya Defense Forces and the National Police Service
Pressure sensitive adhesive of tariff number 3506.91.00 Exempt
Plain polythene film/LPDE of tariff number 3921.19.10 Exempt
Plain polythene film/PE of tariff number 3921.19.10 Exempt
PE white 25-40gsm/release paper of tariff number
Exempt
4811.49.00
ADL 25-40gsm of tariff number 5603.11.00 Exempt
Musical instruments and other musical equipment imported
or purchased locally, for exclusive use by educational
Exempt
institutions, upon recommendation by the Cabinet Secretary
for Education
Inputs and raw materials used in the manufacture of
mosquito repellent on recommendation by the Cabinet 16%
Secretary responsible for Health
Bioethanol vapor (BEV) Stoves classified under HS Code
7321.12.00 (cooking appliances and plate warmers for liquid 0%
fuel)
Proposed Rate Comments
This is likely a clean-up of the VAT Act as these projects
have most likely been concluded.
However, where there are ongoing projects covered under
16% this provision, the proposal will negatively impact these
projects and will have negative implications on future
projects as investor confidence in the Government will be
dampened.
The proposal will see the cost of inbound international sea
16% freight increase and consequently the cost of the imported
goods.
The introduction of VAT on these services will significantly
increase costs for players in a sector that is already heavily
16%
taxed. Further, the VAT Act does not provide guidance on
what the taxable value of the services will be.
The proposal to subject all goods and services imported for
the local film industry will negatively impact the local film
16%
sector and goes against the governments agenda to create
opportunities for the youth.
The supply of goods to the National Intelligence Service will
Exempt
be exempt from VAT.
The introduction of VAT on these services will significantly
increase costs for players in a sector that is already heavily
16%
taxed. Further, the VAT Act does not provide guidance on
what the taxable value of the services will be.
16%
16%
16%
16%
This will impact educational institutions which offer music
16% classes as the introduction of VAT will increase the tutoring
costs.
This is a welcome move in the fight against malaria as it
Exempt
will reduce the cost of production of mosquito repellents.
The importers of these stoves will be impacted as they will
Exempt not be in a position to claim the input VAT on the
importation of these stoves.

| Prepared by Victor J. Owuor

Investment Analyst
 PROPOSED EXCISE DUTY AMENDMENTS
Product Current Excise Duty Rate Proposed Excise Duty Rate
Telephone and internet data services. 15% 20%
Fees charged for money transfer services by banks, money transfer agencies and other 15% 20%
financial service providers
Fees charged for money transfer services by cellular phone service providers and payment 15% 20%
service providers licensed under the National Payment System Act, 2011.

Proposed Excise
Product Current Excise Duty Rate
Duty Rate
Motorcycles of tariff 87.11.60.00
(with electric motor for propulsion) other than motorcycle ambulances
Motorcycles of tariff 87.11 and locally assembled motorcycles will be subject to excise duty at a rate
(Motorcycles (including mopeds) and cycles fitted with of 10% of the value or KES 12,952.83 per unit whichever is higher. The
KES 11,608.23
an auxiliary motor, with or without sidecars; sidecars) upshot of this proposal is to charge excise duty on electric motorcycles of
other than motorcycle ambulances, locally assembled per unit HS Code 87.11.60.00 only and remove excise duty on all other
motorcycles and electric motorcycles motorcycles covered under tariff heading 87.11. This amendment in our
view will make electric motorcycles more expensive and will discourage
the uptake in electric motorcycles.
Imported sugar confectionary of tariff heading 17.04
(Sugar confectionery (including white chocolate), not KES 40.37 per kg KES 257.55 per kg
containing cocoa)
Cigarettes with filters (Hinge lid and soft cap) KES 3,825.99 per mille KES 4,100 per mille
Cigarettes without filters (plain cigarettes) KES 2,752.97 per mille KES 4,100 per mille
Products containing nicotine or nicotine substitutes
intended for inhalation without combustion or oral
application but excluding medicinal products approved
by the Cabinet Secretary responsible for matters
KES 1,500 per kg KES 2,000 per kg
relating to health and other manufactured tobacco and
manufactured tobacco substitutes that have been
homogenized and reconstituted tobacco, tobacco
extracts and essence
Liquid nicotine for electronic cigarettes KES 70 per milliliter KES 100 per milliliter

Product Previous Excise Duty Rate Proposed Excise Duty Rate

Beer, Cider, Perry, Mead, Opaque beer and mixtures of fermented beverages with
KES 134 per litre KES 22.5 per centiliter of pure alcohol
nonalcoholic beverages and spirituous beverages of alcoholic strength not exceeding 6%

Spirits of undenatured ethyl alcohol; spirits liqueurs and other spirituous beverages of
KES 335.30 per litre KES 16 per centiliter of pure alcohol
alcoholic strength exceeding 6%

Wines including fortified wines, and other alcoholic beverages obtained by fermentation
KES 229 per litre KES 22.5 per centiliter of pure alcohol
of fruits

Tariff No. Tariff Description Current Rate Proposed Rate

2523.10.00 Cement clinker 17.5% of the customs value 10% of the customs value
Semi-furnished products of iron non-alloy steel containing by weight,
7207.11.00 <0.25% of carbon; of rectangular (including square) cross section, the width 17.5% of the customs value 0
measuring less than twice the thickness
Bars and rods of iron or nonalloy steel, value hot-rolled, in irregularly wound
7213.91.90 coils of circular cross section measuring less than 14mm in diameter; other 17.5% of the customs value 0
measuring less than 8mm
4804.21.00 Sack kraft paper; unbleached 10% of the customs value 0
4804.31.00 Other kraft paper and paper board weighing 150g/mA2 or less: Unbleached 10% of the customs value 0
4819.30.00 Sacks and bags having a base of a width of 40cm or more 10% of the customs value 0
4819.40.00 Other sacks and bags, including cones 10% of the customs value 0

| Prepared by Victor J. Owuor

Investment Analyst
A) Repeal of DST and Introduction of Significant Economic
Presence Tax (SEPT)
▪ Significant Economic Presence Tax (SEPT)
Tax Rate: 30% on 20% deemed taxable profit or 6% of gross
turnover for non-residents.
Deemed Profit: Taxable profit is not based on actual profit but
deemed, leading to potentially higher taxes.
Payment Frequency: Monthly, upon filing returns by the 20th
of the following month.
Policy Shift: Reflects Kenya's move towards a multilateral
approach, stepping away from unilateral digital service tax
measures.
B) Introduction of Minimum Tax (Effective 1/7/24)
▪ Minimum Tax for Multinational Group Members
Criteria: Applicable to entities in Kenya that are part of a
multinational group with a combined effective tax rate below
15% and with annual turnover of the parent entity exceeding
€70M in two out of the four preceding years.
Calculation: Difference between 15% of income and the
effective tax rate.
Exemptions: Public entities, tax-exempt persons, pension
funds, and non-operating investment holdings.
Objective: Aligns with OECD/G20 BEPS rules, aiming to prevent
base erosion and profit shifting.
C) Transfer Pricing and Motor Vehicle Tax
▪ Advanced Pricing Agreements (APA)
Aligns Kenya's APA Programme with other East African
Community (EAC) countries, addressing regional capacity
constraints.
▪ Motor Vehicle Tax
Rate: 2.5% of vehicle value, with a minimum tax of Kshs 5,000
and a maximum of Kshs 100,000.
Application: Payable upon issuance of insurance cover.
Exemptions: Ambulances, government vehicles, and those
under specific immunity acts.
Implications: Potential increase in insurance premiums,
discouraging comprehensive insurance uptake, and additional
operational costs for insurance companies.
D) Taxation in the Digital Economy and Public Sector Supply
▪ Withholding Tax on Digital Marketplaces
Rates: 5% for residents and 20% for non-residents.
Objective: Broaden the tax base within the digital economy.
▪ Supply of Goods to Public Entities
Withholding Tax Rates: 3% for resident suppliers and 5% for
non-resident suppliers.
▪ Expanded Definition of Royalties
Includes payments for software use, licenses, development,
training, maintenance, and support fees. expense limits for
residential mortgage interest.
E) Affordable Housing and Related Amendments
▪ Affordable Housing Relief
Repeal: Proposal to scrap the 15% relief on employee
contributions.
Rebates and Deductions
Scrapping 15% tax rebate for developers constructing at least
100 units annually.
▪ Affordable Housing Levy Deductibility
Clarifications: Levy to be deductible for income earners other
than employees.
F) Investment-Related Amendments
▪ Investment Deduction Repeal
Removal of 150% capex deduction on bulk storage facilities for
the Standard Gauge Railway (SGR).
▪ Infrastructure Bonds Taxation
Interest from infrastructure bonds to be subject to 5% tax.
▪ Capital Gains Tax (CGT)
Reduced CGT rate for investments certified by NIFCA, and
exemptions for asset transfers to wholly owned companies.
G) Employment Tax Regime Adjustments
▪ Per-Diems and Benefits
Increase in allowable per-diems and thresholds for
miscellaneous benefits and meal benefits.
▪ Health Insurance Contributions
SHIF contributions to be deductible for tax purposes.
▪ Retirement Benefits
Increase in allowable deductions for contributions to pension
funds and retirement medical funds.
H) VAT and Excise Duty Amendments
▪ VAT Registration Threshold
Increased from Kshs 5M to 8M to reduce compliance burden
on small businesses.
▪ VAT Refund Limitations
Restrictions on refunds for certain excess input VAT scenarios.
▪ Excise Duty Adjustments
New duties on digital platform services, spirits from local
agricultural products, and various goods such as coal and
vegetable oil.
I) Other Tax Procedure Amendments
▪ Tax Agent Licensing
Recommendations by the Tax Agents Committee required for
licensing and cancellation.
▪ Electronic Tax Invoices
New mandatory information requirements for valid invoices.
▪ Tax Abandonment Provisions
Conditions under which the Commissioner may abandon tax
assessments.
▪ Agency Notices and Appeals
Validity extended to one year, and provisions affecting the
process of lodging appeals.

| Prepared by Victor J. Owuor

Investment Analyst
 IMPLICATIONS OF FINANCE BILL 2024
A) Digital Service Tax (DST) Repeal and Significant Economic
Presence Tax (SEPT)
Increased Tax Burden
SEPT replaces DST with a higher tax rate and a more complex
structure. Non-resident companies will now face a 6% tax on gross
turnover or a 30% tax on 20% deemed taxable profit, which can
lead to higher tax liabilities due to the deemed profit accounting.
Monthly Compliance Requirement
SEPT requires monthly payments, adding to administrative
burdens for businesses, increasing cost of doing business and
end-consumer prices.
Shift to Multilateral Approach
This signifies Kenya's move towards multilateral tax measures,
reflecting international trends in digital taxation. Maintaining
international standards will have the advantage of harmonizing
accounting processes but will in the short-term increase operating
costs for businesses not already doing so, pushing up prices and
operational costs.
B) Minimum Tax Introduction (Effective 1/7/24)
Targeting Multinational Groups
The tax applies to Kenyan residents’ part of multinational groups
with an effective tax rate below 15% and annual turnover above
€70M, increasing their tax obligations.
Complex Calculations
The tax is calculated on the difference between 15% of income
and the effective tax rate, introducing complexities in tax
computations.
Exemptions
Certain entities like public entities and pension funds are exempt,
which simplifies compliance for these groups but may require
careful structuring for other entities, especially in M&A deals.
C) Advanced Pricing Agreement (APA) Programme in Transfer
Pricing
Alignment with EAC
The introduction of APAs aims to harmonize Kenya's transfer
pricing regime with other East African Community (EAC)
countries, potentially reducing tax disputes.
Capacity Building
Addressing capacity constraints within tax authorities will be
crucial for the effective implementation of APAs.
D) Motor Vehicle Tax
Increased Insurance Costs
A 2.5% tax on motor vehicle value will raise insurance premiums,
discouraging insurance coverage which is sub-par at 3% in the
country. The proposed tax presents added costs to insurance firms
to administer, as well as undue pressure on the owners of vehicles
as they are already being taxed on purchase, maintenance & fuel.
Administrative Burden
Insurers will face increased costs to implement new systems for
tax collection and remittance, impacting their profitability. This
may increase the overall tax burden and affect cash flows.
E) Withholding Tax on Digital Marketplaces
Broadening Tax Base
Introducing 5% WHT on residents and 20% on non-residents in
digital marketplaces aims to widen the tax base in the digital
economy.
F) Supply of Goods to Public Entities Withholding Tax
Increased Tax Burden
Imposing 3% WHT on resident suppliers and 5% on non-resident
suppliers to public entities.
G) Expanded Definition of Royalties
Inclusion of Software Payments: Expanding the definition of
royalties to include software-related payments will subject these
payments to higher taxes, affecting companies dealing in
software and IT services.
H) Affordable Housing-Related Amendments
Elimination of Reliefs and Rebates: Scrapping affordable
housing reliefs and rebates will increase tax liabilities for
individuals and developers, potentially slowing down investment
in housing.
Increased Deductible Interest: Raising the deductible interest
expense limit will provide some relief to individuals with home
improvement or purchase loans.
I) Investment-Related Amendments
Repeal of Investment Deductions: Repealing the 150% capex
deduction for storage facilities reduces tax incentives for large
infrastructure projects.
Tax on Infrastructure Bonds: Subjecting interest from
infrastructure bonds to a 5% tax will reduce their attractiveness.
Lower Capital Gains Tax (CGT): Reintroducing a 5% CGT for
NIFCA-certified investments exceeding Kshs 3B may encourage
large investments.
J) Employment Tax Regime Changes
Updated Allowances: Adjusting per diems, miscellaneous
benefits, and meal benefits thresholds will increase taxable
income for employees.
Health and Pension Contributions: Treating health insurance
contributions as allowable deductions and increasing the
threshold for pension contributions provides tax relief but
increase the complexity of tax compliance for employers.
K) Tax Procedure Amendments
Licensing and Compliance: New requirements for tax agents and
electronic invoices aim to enhance compliance but add
administrative burdens.
Tax Abandonment Provisions: Allowing the abandonment of
unrecoverable tax debts could improve tax collection efficiency.
Objection Decision Timelines: Extending objection decision
timelines from 60 to 90 days will provide more time for tax
authorities but may delay resolution for taxpayers.
L) VAT and Excise Duty Amendments
Increased VAT Registration Threshold: Raising the VAT
registration threshold from Kshs 5M to 8M reduces the
compliance burden on small businesses.
| Prepared by Victor J. Owuor
Investment Analyst
New Excise Duties: Introducing excise duties on digital services,
certain plastics, and vegetable oils aims to increase revenue but Kenyan Govt Expenditure Q3 Fy 23/24
may raise costs for consumers and businesses. Wages and
Repeal of Annual Inflation Adjustments: Removing annual salaries
inflation adjustments for excisable goods could stabilize excise Civil Servant
duty rates but may reduce revenue growth. Pension
Pension
Kenya's Fiscal Performance Fy 23/24 & CFS
5,000,000
Foreign
4,000,000 Interest
Domestic
3,000,000 Interest
0 100 200 300 400 500 600
2,000,000
Target (KES Bn) Actual (KES Bn)
1,000,000
Govt Development Expenditure Fy 23/24
Kshs Mn

0 300

(1,000,000) 250
(778,270.7) (896,807.5) (758,808.6) (823,900.4) (957,264.9)
(2,000,000) 200
2019 2020 2021 2022 2023* 150
Recurrent Revenue (KSh Mn)
Total National Government Expenditure (KSh Mn) 100
Surplus/(Deficit)
50

Kenya Revenue Fy 23/24 Q3 Performance 0

Actual (KES Bn) Target (KES Bn) Development projects Guaranteed Loans Appropriation in Aid
Import duty 98.4 128.2 Actual (KES Bn) Target (KES Bn)
Excise duty 204.2 258.7
PAYE 391 463.3 Outlook & Recommendation
VAT Local 233.5 262.6 The Kenyan Government has been faced with fiscal deficits over
VAT Imports 247.6 253.9 the last couple of years as illustrated above. However, it appears
Investment revenue 13.9 27.5 that the shortfall is more of an expenditure issue rather than
Traffic revenue 3.1 4.1 revenue which has continued to be on the rise indicating that the
IDF Fee 35.5 38.7 Revenue Authority has been making improved collections and
Railway Development that Kenyan’s are paying their taxes & decreasing leakages within
24.3 26.4 the economy.
Levy
TOTAL Despite the aggressive measures enacted on Kenyans with the
1251.5 1463.4
Finance Bill 2023, expenditure has remained on a rising trend and
has largely been responsible for the deficit which the government
Change in National Govt Expenditure by main function of
is trying to reduce with the proposed amendments in the Finance
Government Fy 23/24% Bill 2024.
Social Protection 18.9% Kenyan citizens and various stakeholders have aired their
Recreation culture & religion 151.7% concerns relating to the Finance Bill. Many of which have been
Education 83.6% unfavorable responses, and this is because they are stifling
Health 61.5% growth within the economy & reducing people’s overall cost of
Housing and community amenities 116.2% living as the extra cost implications are passed on to the end
Economic Affairs protection 52.0% consumers who subsequently are left with less disposable
Public Order & Safety 29.1% income and savings which are necessary to spur demand and
Transfers of general character btwn… 1.9% investment that increases productivity and growth within an
Defence 19.8% economy.
Public Debt Transaction 34.2% The deficits that the country faces lead to further debt, creating
General Public Services -0.6% a perpetual cycle of borrowing and repayment leaving little to no
funds available for development activities. This has the negative
impact of restricting growth as the private sector gets crowded
out in terms of access to credit as well as increasing the
borrowing costs related to accessing credit which is essential to
boost growth and investments.
| Prepared by Victor J. Owuor
Investment Analyst
Proposed amendments many of which are increases in tax liabilities have the inverse effect of making it less attractive to carry out
business in the country and could make Kenya a less competitive regionally and globally as countries with lower production costs
and taxes would increase & take up market share.
Switching gears, the government needs to rationalize its expenditure and more so its salaries and wages which have been 60% or
higher of our National Budgets and along with debt repayments carry the bulk of government expenditure.
Left untamed, the country will be forced to continue the trend of increasing tax revenues to make up for the budgetary shortfall
which will be used to make debt repayments plunging the country further into a debt spiral and increase the tax burden on citizens.
The very citizens the government is tasked with protecting and improving the livelihoods of are the very people it is undermining.
Countries quoted with much higher tax levels that Kenya has been made comparison to with regard to the Finance Bill debate, the
aforementioned nations have better social protection for their citizens as well as being a lot further along in their development
and shouldn’t be used as a benchmark for comparison to Kenya.
Instead, conversations should be guided by what initiatives/agendas could the government undertake that will have positive lasting
impact within society and aligning these agenda with the available resources both monetary and personnel to steer the country
in the right direction.
Public participation has been on an increase recently but not because citizens are exercising their civil rights but because many feel
aggrieved. It would be more prudent for the government to disclose its expenditures as well as make proposals on future
expenditure to be debated on so that the country can make decisions that are well informed and facing measures that are imposed
on them as a consequence of previous regimes, misappropriations and mismanagement of resources shouldn’t be a burden placed
solely on its citizens.
It is therefore our view that the proposed amendments in the Finance Bill 2024 are unfavorable, restrictive and not guided by
production and improved economic performance. Typically increase in taxes should coincide with increased production so as to
result in a positive net effect. Evidently the proposed amendments increase costs of doing business, reduce our competitiveness
within the region and will decrease average incomes of its citizens which will have the negative effect of reducing tax revenues
down the line.

| Prepared by Victor J. Owuor

Investment Analyst