Tax Laws (Amendment) Bill, 2024
Objective and Rationale
The primary objective of the Tax Laws (Amendment) Bill, 2024, is addressing the fiscal deficit by expanding the tax net and improving taxpayers' compliance. The rationale behind the legislative proposal is rooted in the need to diversify revenue sources, reduce reliance on external borrowing, and create a more equitable tax system. The bill aims to distribute the tax burden more fairly across different income groups and economic sectors by introducing new levies and adjusting tax bands.
Key Provisions
The bill’s provisions encompass a range of measures that collectively contribute to its overarching goals. These measures include:
1. Broadening the Tax Base: The bill proposes to expand the tax net by including new definitions and categories for taxable income, ensuring that a wider range of entities and transactions are subject to taxation. This involves:
Expanded Definitions: Introducing more comprehensive definitions of taxable income to capture new forms of revenue.
New Categories: Encompassing previously untaxed sectors and income streams, thereby increasing the overall tax base.
Digital Economy: This includes provisions to tax digital transactions and services, acknowledging the growing digital economy.
2. Introduction of New Levies: The bill introduces new taxes including those on digital assets and infrastructure bonds to enhance revenue collection. These levies capture previously untaxed sectors and income streams, thereby increasing overall government revenue.
Digital Assets Tax: Targeting earnings from cryptocurrencies and other digital assets, making it mandatory for holders to declare and pay taxes on these holdings.
Infrastructure Bonds: Introducing a levy on infrastructure bonds, ensuring that the funds raised for development projects also contribute to the national revenue.
Service Levies: Imposing taxes on previously untaxed services, particularly in the digital and financial sectors.
3. Adjustment of PAYE Bands: The bill adjusts the Pay As You Earn (PAYE) tax bands to improve progressively and fairly.
Increase Progressively: Higher-income earners will see a slight increase in their tax rates, while lower earners will benefit from reduced rates, making the tax system more equitable.
Tax Reliefs: Introducing tax reliefs and exemptions for certain income brackets to ensure fair taxation and reduce the tax burden on the lower-income population.
4. Minimum Tax Rate: A key provision is introducing a 15% minimum tax rate for multinational companies:
Global Revenues: This tax targets entities with revenues exceeding EUR 750 million, ensuring that these companies contribute their fair share to the Kenyan economy.
Preventing Tax Evasion: By setting a minimum tax rate, the bill aims to prevent profit shifting and tax evasion by large corporations.
5. Economic Presence Tax: The bill introduces a significant tax for non-resident digital service providers:
Digital Services: Companies providing digital services to Kenyan customers, even without a physical presence in Kenya, are subject to this taxation.
Fair Competition: Ensuring a level playing field between local and foreign digital service providers by subjecting all to the same tax rules.
6. Amendments to Turnover Tax: To support small businesses, the bill makes the following changes:
Threshold Increase: Raising the exemption threshold for businesses from KES 1 million to KES 5 million, reducing the tax compliance burden on small enterprises.
Simplified Taxation: Introducing simplified tax filing procedures for small businesses to encourage compliance and reduce administrative costs.
7. Penalties for Non-Compliance: To enhance compliance, the bill sets penalties for businesses that fail to integrate with Kenya Revenue Authority (KRA) systems:
Reduced Penalties: While the original penalty for non-integration was KES 500,000, the bill proposes reducing this to KES 100,000, balancing deterrence and fairness.
Encouraging Compliance: These penalties aim to ensure that businesses comply with tax regulations and integrate with KRA’s digital systems for better tax administration.
8. Tax Exemptions and Reliefs: The bill introduces several exemptions and reliefs to support specific sectors and encourage compliance:
Park Entry Fees: exempting park entry fees from VAT to promote tourism.
Ceramics and sanitary Ware: Exempting imported ceramics, sinks, and wash basins from import duties to support local construction and manufacturing sectors.
Air Ticketing Services: Providing tax relief for air ticketing services to promote the aviation industry.
These comprehensive changes reflect Kenya’s commitment to enhancing tax compliance, increasing government revenue, and supporting economic growth through fair and effective taxation.
Conclusion
The Tax Laws (Amendment) Bill, 2024, marks a pivotal step in Kenya’s efforts to build a robust and equitable tax system. The bill aims to create a more sustainable fiscal environment by broadening the tax base, introducing new levies, adjusting tax bands, and enhancing compliance measures. These changes are expected to increase government revenue and support economic growth and development, ensuring a fair distribution of the tax burden across different income groups and economic sectors.
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