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The President signed into law the Finance Act 2016 which had some changes in the tax regime. The changes were made in the Income Tax, Excise Tax, Value Added Tax, Tax Procedures Act, Betting Lotteries and Gaming Act and the Companies Act. Below are some of the key changes;

Income tax

  1. Residential rental income below Kshs. 12,000 is now tax free

When this tax was introduced, landlords were not a happy lot. The government now wants to sweeten the deal by making the first Kshs.12,000 every month arising from rental income is now exempt from the Rental Income Tax.

2. Expenses Incurred on sponsoring sports

Expenses that are incurred in sponsoring sports activities by both individuals and corporates are now tax deductible. However, this requires prior approval by the sports Cabinet Secretary. This will act as an incentive to companies like Sportpesa and Safaricom to continue sponsoring sports like football and athletics.

3. Lower corporate tax of 15% for residential estate developers

In a bid to provide an incentive for developers to build residential estates, the corporate tax rate has been reduced from 30%. This is a further reduction from the 20% that was proposed in the budget. However, to qualify for this rate the developer has to construct at least 400 units per year. This proposal is not limited to one project but can be applied to multiple projects.

4. Capital Gains Tax

Transfer of assets between spouses, former spouses as part of a divorce settlement or separation agreement, to immediate family or to a company where spouses and immediate family hold 100% shareholding shall be exempt from capital gains tax.

5. Bonuses and overtime

Bonuses, overtime and retirement benefits paid to employees earning a total income excluding these benefits amounting to Kshs.11,180.33 per month shall be tax free.

6. Withholding Tax on Lottery Winnings

Withholding tax that was previously payable by lottery winners has now been abolished. This follows implementation challenges.

7. Individual Tax Rates

The annual individual income tax bands have been widened after a very long time. This will be a welcome relief to employees.

first Shs.134,164 – 10%

next Shs.126,403 – 15%

next Shs.126,403 – 20%

next Shs.126,403 – 25%

income over Shs.513,373 – 30%

Betting, Lotteries and Gaming Act

  1. Betting tax

There shall be a tax known as betting tax that will be charged at a rate of 7.5% of the gaming revenue. Gaming revenue here means gross turnover less the amount paid out to customers as winnings. The tax shall be paid on the 20th day of every month of collection to KRA.

2. Lottery Tax

This tax will be chargeable at a rate of 5%. The tax shall be paid by a person authorized to promote a lottery on the 20th day of the month to KRA.

3. Gaming Tax

This tax will be chargable at a rate of 12% of the gaming revenue. The tax shall be paid out on the 20th of every month to KRA.

Companies Act

In the past there has been a local shareholder’s requirement. This requirement stated that a foreign company had to have atleast 30% local shareholding held by Kenyan citizens by birth before registration. This has now been removed due to the fact that it acted as a disincentive for foreign investors.

Special Economic Zones Act

Convention and conference facilities can now register as Special Economic Zones (SEZ). In the recent past Nairobi has played host to a number of global conferences like TICAD, UNCTAD. These have raised Kenya’s profile but came at a great inconvenience to Nairobians. This incentive is aimed at encouraging investment in such facilities in areas outside the Nairobi CBD.

Excise Tax

There are some new items that are now subject to the tax and they include;

  1. Excisable goods removed from a SEZ for sale in the local market.
  2. Kerosene which has been used by some unscrupulous dealers to adulterate fuel. This will result in it being expensive for the poor but will be mitigated by the VAT zero rating of LPG cooking gas in the hope of boosting uptake.
  3. Cosmetic and beauty products, this will have an effect on ladies’ wallets.

Items exempted from the tax include;

  1. Locally assembled motor vehicles.
  2. School buses intended for public schools.
  3. Locally assembled motor cycles
  4. Goods imported for direct use in the manufacture of sanitary towels.
  5. All goods including material supplies, equipment, machinery and motor vehicles for the official use by the Kenya Defence Forces and the National Police Service.

Value Added Tax

Items exempted from this tax include;

  1. Any service charge paid in lieu of tips is now exempted from VAT.
  2. Goods and services imported or purchased locally for use by the local film producers and local filming agents, upon recommendation by the Kenya Film Commission subject to approval by the Cabinet Secretary to the National Treasury. This is a boon for the local film industry.
  3. Goods for use in the assembly, manufacture or repair of clean cooking stoves approved by the Cabinet Secretary upon recommendation by the Cabinet Secretary for the time being responsible for matters relating to energy.
  4. Items used in the manufacture of sanitary towels.
  5. Taxable good for the direct and exclusive use for construction of specialized hospitals with accommodation facilities upon the recommendation by the Cabinet Secretary responsible for health.
  6. Entry fees into the national parks and national reserves.
  7. The services of tour operators, excluding in-house supplies.
  8. The Fuel VAT exemption has been extended by a further 2 years from 1ST September 2016. This must be related to 2017 being an election year.
  9. Liquefied petroleum gas has been moved from the exempted items list to zero rated items. This will result in a further reduction in cooking gas prices.

Tax Procedures Act

  1. Amnesty will be given in respect to taxes, interest and penalties arising from taxable income earned from outside Kenya for any year of income ending on or before 31st December 2016 by a person who files the returns and accounts for the year 2016 on or before 31st December 2017.
  2. Refund of overpaid tax. The period for a refund of overpaid tax has now been extended from 1 year to 5 years. However, this shall not apply to refunds relating to VAT which still have to be applied for within 12 months.
  3. Tax refunded in error to attract interest. Any tax refunded to a tax payer in error shall attract an interest of 1% if payment is not made within 30 days of the date of service demand by the commissioner. Interest chargeable shall however not exceed 100% of the tax originally due.