Finance

Act, 2023
Analysis
Kenya

July 2023

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Preamble
The President signed into law the Finance Act, 2023 (Act) on 26 June 2023. to 16% is expected to impact the cost of living due to its use in many
The Act was subsequently gazetted on 27 June 2023. While a majority of sectors of the economy.
the changes will take effect from 1 July 2023, a few others will take effect on
Exportation of services will now be taxed at 0%, this is a welcome move as
1 September 2023 and 1 January 2024.
it aligns the VAT treatment on export of services with international norms
The Act, which the President has described as a strategic answer to the and standards.
difficulties the country faces, aims to generate additional revenue to meet Another change that has sparked significant debate is the requirement to
the government’s KES 3.6 trillion budget. This amount excludes about KES remit withholding tax to the Kenya Revenue Authority within a 5-day period.
800Billion in principal debt repayments that will come due during the year. While the government is under pressure to enhance tax collection, the
The Act introduces fundamental changes to Kenya’s tax and social increased administrative burden associated with this provision was not
contributions regime. One such change is the introduction of a Housing adequately considered.
Levy, which requires both employers and employees to contribute to the
While the government is facing fiscal constraints and requires revenue to
National Housing Development Fund. While the Finance Bill, 2023 had
meet it expenditure objectives and settle debts that are coming due, it
proposed that the contributions be refundable or be used to finance
remains to be seen whether the government interventions will create
purchase of houses under affordable housing, the legislated change is a
employment opportunities and spur growth in the manufacturing and
non-refundable levy of 1.5% payable by both the employer and employee.
agricultural sectors which have lagged over the last few years.
Another significant change is the introduction of new PAYE tax bands. The
We provide in the ensuing pages our in-depth analysis of the Finance Act,
Act has adopted a new tax band of 32.5% for income between KES 500,000
2023
and KES 800,000 and 35% for income exceeding KES 800,000. Few
people earn income in this range and it will be interesting to see the impact
the change will have on tax collections.
The increase in VAT on petroleum products (excluding LPG gas) from 8%

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Income Tax-
Corporation
Tax
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Definition of “winnings” Definition of “ digital content monetisation”
Enacted provision: The Act defines the term “winning” to mean: the pay-out from betting,
Enacted provision: The Act has introduced the term
gaming, lottery, prize competition, gambling, or similar transaction under the Betting, Lotteries
“digital content monetisation” which it defines to include
and Gaming Act excluding the amount staked or waged.
offering for payment entertainment, social, literal, artistic,
educational or any other material electronically through any
Implication: The definition removes ambiguity and provides clarity that the amounts staked or medium or channel, in the following forms:
waged are to be excluded when computing tax on winnings. a) Advertisement on website and social media platforms
by partnering with brands, including endorsements;
Effective date: 1 July 2023
b) Payment to content creator for promoting brands;

c) Affiliate marketing where an influencer is paid every

“Immovable property” definition broadened time their fans click on a product they are promoting
Enacted provisions: The Act has broadened the definition of “immovable property” to include d) Subscription payments to access the content of the
land, whether covered by water or not, any estate, right, interest or easement in or over any land content creator, including exclusive membership
and things attached to the earth or permanently fastened to anything attached to the earth, and programs;
include a debt secured by mortgage or charge on immoveable property; and a mining right, an
interest in a petroleum agreement, mining information or petroleum information e) Licensing of content including photographs, music;

The Act also moves the definition to the interpretation section of the Income Tax Act (ITA). f) Fees earned from crowd funding
The income on digital content monetization will now be
Implication: The definition broadens the meaning of “immovable property thus increasing subject to withholding tax at 5% for residents and 20% for
the tax base. There is however ambiguity arising from the use of the conjunction ‘and ‘ in non-residents.
the definition which could create interpretation challenges.
Implication: The Act brings into the tax net, digital
Effective date: 1 July 2023 content business which is a growing business niche
Effective date: 1 July 2023

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Deferment of foreign exchange loss now limited to 5 years

Enacted provision: The Act provides that the realized foreign

exchange loss for a company, whose gross interest paid or
payable to non-resident persons exceeds thirty per cent of the
company’s earnings before interest, taxes, depreciation and
amortization (EBITDA) in any financial year, is to be deferred and
claimed over a period not exceeding five years from the date the
loss is realized.

Implication: Foreign exchange losses realized by persons

subject to interest restriction, will be deductible within a period
of 5 years from the date the loss is realized. The change
provides clarity on the treatment of realized foreign exchange
losses following the change in thin capitalization provisions.

Effective date: 1 July 2023

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Income from registered trusts Increase in Turnover Tax (ToT) rate from 1% to 3% and reduction of bands

Enacted provision: The Act has deleted sub- Enacted provision: The Act has amended the upper band for ToT from KES 50 million to KES
section 11(3A) of the ITA which provides for 25 million and increased the turnover tax rate from 1% to 3%.
taxation of income paid out of a registered Trust
in respect of: Implication:
The reduction in the turnover of person falling under ToT from KES 50 million to 25 Million,
a) any amount that is paid out of the trust reduces the number of persons paying ToT and subjects the persons with income above
income on behalf of any beneficiary and is KES 25m to tax under the normal income tax provisions. These businesses will now
used exclusively for the purpose of compute their tax liability taking into account their expenses and pay income tax at the rate
education, medical treatment or early of 30%.
adulthood housing;
Effective date: 1 July 2023
b) income paid to any beneficiary which is
collectively below ten million shillings in the Taxation of other manufacturing activities including refining
year of income;
Enacted provision: The Act has included a provision for the taxation of manufacturing
c) such other amount as the Commissioner may activities including refining under rates to be negotiated with Government where a business is
prescribe from time to time. established under a special framework arrangement with the government.
Implication:
Implication: Under the new provision, investors in government priority sectors will have the opportunity
The amendment provides clarity on the taxation of to negotiate favorable tax rates with the government, provided the investment is more than
payments out of a registered trust to beneficiaries. KES 10billion.
Effective date: 1 July 2023
Effective date: 1 July 2023

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Introduction of Digital Asset Tax at 3%
Enacted provision: The Act has introduced Digital Asset Tax (DAT) of
3% to be paid on income derived from the transfer or exchange of digital
The income derived from transfer or exchange of a digital asset that is
assets.
subject to tax is the gross fair market value consideration received or
The Act defines a digital asset as: receivable at the point of exchange or transfer of a digital asset.
▪ anything of value that is not tangible and cryptocurrencies, token code, The owners of the platform are to deduct and remit the DAT to the KRA
number held in digital form and generated through cryptographic within 5 working days after making the deduction. The payment is to
means or otherwise, by whatever name called, providing a digital include a return with details of the amount paid, the tax deducted and any
representation of value exchanged with or without consideration that other information that the KRA will prescribe.
can be transferred, stored or exchanged electronically; and
Non-resident owners of the platforms through which digital assets are
▪ a non-fungible token or any other token of similar nature, by whatever exchanged or transferred are required to register under the simplified tax
name called. regime, similar to the existing regime under Digital Services Tax.

Implication:

The requirement to remit the tax within 5 working days after making the deduction is administratively onerous. In addition, by taxing the turnover rather
than the gains, the tax is likely to be a disincentive for persons seeking to engage in digital asset trading.
Effective date: 1 September 2023

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Income Tax –Corporation tax

Loose tools/implements (Section 15(2)(g)) disallowable expense? Club fees and subscription now allowable

Enacted provision: The Act now allows the deduction of club subscriptions
Enacted provision: The Act has deleted Section 15(2)(g) to the ITA
which allowed for tax deduction on diminution in value of loose tools and and entrance fees for corporation tax purposes.
utensils.

Implication: The deletion removes a provision that allowed the

deduction of expenditure on loose tools and utensils. However, the Implication: The enacted provision will incentivize companies to invest in the
deletion appears to be a drafting error as the Act makes reference to welfare of their human capital with the hope of carrying out business
substitution of the same with another paragraph that is not provided. development through networking.
The Finance Bill, 2023 had proposed that the loose tools and utensils
be accorded 100% deduction. This is the provision that has been Effective date: 1 January 2024
erroneously omitted in the Act.

Effective date: 1 July 2023

Enhancement of the Electronic Tax Invoice Management Systems

(eTIMS) compliance
Enacted provision: The Act seeks to enhance tax compliance with the
newly rolled out eTIMS by disallowing expenses that are not supported
with eTIMS-compliant invoices, except where an exemption has been
granted under the TPA.
Implication: The change will promote the adoption of eTIMS by
ensuring that taxpayers only conduct business with suppliers who are
VAT compliant. However, this is likely to disenfranchise small traders
who may not qualify for VAT registration and are therefore not
required to have eTIMS.

Effective date: 1 January 2024

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Back to restricted interest ambit

Enacted provision: The Act has deleted the exemption from interest
restriction that had been given to companies engaged in manufacturing
who make cumulative investment of at least five billion shillings.

Implication: This may discourage capital intensive investments in the

manufacturing sector which ordinarily are highly geared, and goes
against the government agenda of creating jobs to alleviate
unemployment in Kenya. One positive aspect is the removal of local
loans from the interest restriction.

Effective date: 1 January 2024

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Restricted interest – Applicable on non-resident persons Income exempt from corporation tax

Enacted provision: The Act has ring fenced the interest accrued from Enacted provision: The Act now exempts the following incomes from corporation
local borrowing from the interest restrictions rules. tax:

The Act further provides that where interest has been restricted, the i. Investment income of a post-retirement medical fund, whether or not the fund
taxpayer can claim a deduction of the restricted interest in the is part of a retirement benefits scheme
subsequent three years, provided that the deduction does not exceed
ii. Income earned by a non-resident person implementing a project that is 100%
30% of EBITDA.
financed through a grant under an agreement with the government and a
Implication: The change will encourage companies to borrow locally development partner, provided that the person is in Kenya solely for the
and could lead companies to restructure their loans in favor of the implementation of the project
local financial sector. It also allows companies an opportunity to
iii. Gain on the transfer of property within a special economic zone by a licensed
deduct restricted interest where a restriction arises from fluctuations
enterprise, developer and operator
in profitability in the short-term.
iv. Royalties, interest, management fees, professional fees, training fees,
Effective date: 1 January 2024
consultancy fee, agency or contractual fee paid by a special economic zone
Members’ clubs and trade associations to pay tax developer, operator or enterprise, in the first 10 years of its establishment, to
a non-resident person
Enacted provision: The Act has brought to tax the income of members
clubs and trade associations. Joining fees, welfare contributions and v. Royalties paid to a non-resident person by a human vaccine manufacturing
subscriptions are excluded from taxable income. company and interest paid to a resident and non-resident person by a
company manufacturing human vaccines.

Implication: Under the repealed provision, the income of clubs and

Implication: The above exemptions will encourage investment by individuals in
trade associations was not taxed as long as 75% or more of the
income was from members. In light of the change, the members clubs their post-retirement health, spur interest in the Special Economic Zones and
and associations are now expected to account for tax irrespective of promote local manufacture of human vaccines.
the source of their income. Effective date: 1 July 2023
Effective date: 1 July 2023

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Persons eligible for exemption under the First Schedule - Defined

Enacted provision: The Act has defined a “body of persons” for purposes of tax exemption
under Paragraph 10 of the First Schedule to the ITA as follows:
“An institution, body of persons or irrevocable trust, of a public character” means an entity
established to benefit the public in a transparent and accountable manner without restriction or
discrimination regardless of the level of charges or fees levied for services rendered, and which
utilizes its assets or income exclusively to carry out the purpose for which the entity was
established without conferring a private benefit to an individual.

Implication: The definition enhances clarity, and removes ambiguity on who qualifies for
exemption from income tax.

Effective date: 1 July 2023

Revocation of exemption for human vaccine manufacturers

Enacted provision: The Act has revoked the income tax exemption granted to companies
undertaking the manufacture of human vaccines, and introduced corporate tax at a preferential
rate to be set out in the respective Special Operating Framework Agreement.

Implication: This provision removes the contradiction that may arise from the exemption of
human vaccines in the First Schedule to the ITA and the 10% tax rate provided under the
Special Operating Framework Agreement.
Effective date: 1 July 2023

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Introduction of industrial building and dock allowances Expanded and new definitions under the Second Schedule of the
ITA
Enacted provisions: The Act has introduced industrial building and dock
allowances at a rate of 10% on straight-line basis. Enacted provisions: The Act introduces the following definitions under
the Second Schedule to the ITA as follows:
The Act defines an industrial building and a dock as follows:
• In the definition of “civil works”, by inserting the following new item
• Industrial building: includes a building in use for the purpose of immediately after item (v):
transport, bridge, tunnel, inland navigation water and electricity or
hydraulic power undertaking; “earthworks for telecommunication equipment and construction works
undertaken in connection with the installation and maintenance of
• Dock: Includes a container terminal berth, harbour, wharf, pier, jetty, telecommunication equipment and related structures”.
storage yard, or other works in or at which vessels load or unload
merchandise but does not include a pier or jetty used for recreation. • Machinery used for agriculture - means machinery used directly in
agricultural activities including tilling, planting, irrigation, weeding and
harvesting;;

Implication: The above provisions remove ambiguity on the capital • Telecommunications equipment - includes civil works deemed as
allowances for docks and industrial buildings which had been left out part of the telecommunication equipment or civil works that contribute
when government overhauled the capital allowances regime. to the use of the telecommunication equipment.

Effective date: 1 January 2024

Implication: The change provides clarity on the classification of capital
expenditure for capital allowances computations.

Effective date: 1 January 2024

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Investment allowance Definition of local content in reference to motor vehicle assembly
companies
Enacted provisions: The Act extends the claim of investment
allowance at a rate of 100% to hotel buildings, buildings and Enacted provision: The Third Schedule to the ITA provides a reduced rate of
machinery used for manufacture. corporation tax of 15% for 5 years from the commencement of motor vehicle
assembly operations. The reduced rate is extended for a further period of five
years if the company achieves local content of 50% of the ex-factory price value.
Implication: The enacted provision will encourage investment in the
hotel and manufacturing industry and in turn create employment.
The Act has now defined local content to mean parts designed and manufactured
in Kenya by an original equipment manufacturer operating in Kenya.
Effective date: 1 January 2024
Implication: This enacted provision provides clarity on what qualifies as local
content. This will encourage the local assembly of motor vehicles while
spurring local manufacture of parts due to the expected increase in demand.

Effective date: 1 July 2023

Investment Deduction on bulk storage and handling facilities supporting SGR operations

Enacted provision: Investments made before 31 December 2024 on the construction of bulk storage (100,000 metric tonnes and above) and handling
facilities to support the Standard Gauge Railway operations will qualify for Investment Deduction of 150%.

Implications: This provision allows more time for the investors to enjoy higher capital allowances on the heavy investment made towards the construction of
the storage facilities.

Effective date: 1 July 2023

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Advance tax for motor vehicles – Increased Inclusion of Mortgage refinance companies licensed under the Central
Bank of Kenya Act as a financial institutions
Enacted provisions: The Act has increased the advance tax payable
Enacted provision: The Act has included mortgage refinance companies
on commercial vehicles, excluding tractors / trailers used for
licensed under the Central Bank of Kenya Act as part of financial institutions
agricultural purposes, as follows:
under the Fourth Schedule.

Item New rates Old rates

Implications: Mortgage refinance companies licensed under the Central
Passenger Higher of; KES 100 per Higher of KES 60 per Bank of Kenya Act are now considered as financial institutions for taxation
vehicles passenger per month or person per month; or purposes. Thus, interest payments to such institutions will be exempted
KES 5,000 per year KES 2,400 per year from withholding tax. In return, this is expected to increase liquidity of
such companies. It is expected that they will have adequate funds to lend,
boosting the realization of the affording housing agenda.
Cargo Higher of; KES 2,500 per Higher of; KES 1,500 Effective date: 1 January 2024
vehicles ton per year or KES per ton per year or KES
5,000 per year 2,400 per year
Monthly Rental Income rate (MRI)
Enacted provision: The Act has reduced the rate of MRI tax from 10% to
7.5%.
Implication: The advance tax is claimable against the final tax
liability. However, the change in rate is likely to increase tax Implication: This rate has been reduced to encourage tax compliance by
revenues by capturing taxpayers who are not fully compliant. property owners.

Effective date: 1 January 2024 Effective date: 1 January 2024

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Income Tax-Taxation of Branch

Reduction in Branch corporate tax from 37.5% to 30% and introduction of tax on
deemed profit repatriation at 15% Implication: The change aligns the corporation tax rate for
branches to that of companies. The tax on repatriated
profits is the equivalent of tax on dividend payments.
Enacted provision: The Act has reduced the corporate tax rate applicable to branches from
37.5% to 30%
The difference between branches and companies is that
The Act has further introduced a provision to tax the after-tax profits on profits deemed while companies are taxed when they pay the dividends,
to be repatriated by a permanent establishment. branches will automatically be taxed based on increases in
their asset values without considering their cashflow
The Act introduces a formula to determine the repatriated income as follows; requirements.

R= A1 + (P - T) – A2 Further, to achieve full equity with companies there is need

R - the repatriated profit; for further amendments to make the various payments
A1 - net assets at the beginning of the year; made to the head office or related entities of the branch tax
P - net profit for the year of income calculated in accordance with generally accepted deductible.
accounting principles;
T -the tax payable on the chargeable income; and Effective date: 1 January 2024
A2 - the net assets at the end of the year.

The net assets has been defined as the total book value of assets less total liabilities
for the year of income and shall not include revaluation of assets.

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Gains made by Partnerships now subject to Capital Gains Tax Gains from alienation of shares where alienator held directly or
(CGT) indirectly 20% of the capital of the company

Enacted provision: The Act brings to the ambit of CGT, gains on Enacted provision: The Act brings to tax gains derived from the alienation
transfer of property situated in Kenya that is owned by partnerships. of shares of a company resident in Kenya if the alienator, at any time during
the three hundred and sixty-five days preceding such alienation, held directly
Implication: Partnerships were previously exempt from CGT. The or indirectly at least twenty per cent of the capital of that company
enacted provision seeks to tax any gains made on transfers of
qualifying properties by partnership under the CGT regime. Implication: Where a person holds directly or indirectly 20% of the
underlying ownership of a Kenyan resident company, any gains derived from
Effective date: 1 July 2023 alienation of shares of the company will now be subject to CGT. There is
however, need to review the wording to clear ambiguity on the taxation of
Gains derived from immovable property indirect transfers of shares.

Enacted provision: The Act brings to tax, capital gains derived from Effective date: 1 July 2023
the sales of shares or comparable interests, including interests in a
partnership or trust, if, at any time during the three hundred and sixty- Notification to Commissioner now required where there is direct or
five days preceding the alienation, the shares or comparable interests indirect change of 20% ownership in a company
derived more than 20% of their value directly or indirectly from
Enacted provision: The person alienating shares should notify the
immovable property situated in Kenya.
Commissioner in writing where there is a change of at least twenty per cent in
Implications: The provision seeks to extend the tax to gain on the underlying ownership of the property.
transfers of interests in partnerships and trusts that derive over 20% of
value from immovable property situated in Kenya. The provisions also
brings into the tax ambit indirect transfers of property. Implication: A notification to the Commissioner will assist in tracing and
collecting the CGT on the transfer.
Effective date: 1 July 2023
Effective date: 1 July 2023

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Computation of gains where property not subject to capital gains tax CGT exemption limit on reorganization of groups
is subsequently transferred in a taxable transaction
Enacted provision: The Act limits the exemption from CGT on
Enacted provision: The Act introduces capital gains tax where a property internal reorganizations to groups which have existed for at least 24
is transferred in a transaction that is not subject to CGT, and the property months where there is no transfer to a third party.
is subsequently transferred in a taxable transaction within a period of less
than 5 years. The adjusted cost in the subsequent transfer will be based Implications: This provision seeks to close loopholes that lead to
on the adjusted cost in the first transfer. loss of CGT.
Implication: This closes the loopholes where persons could take Effective date: 1 July 2023
advantage of CGT exemptions to manipulate the cost of the asset
before subsequently selling to third parties.
Indirect transfer of interests of licensee or a contractor
Effective date: 1 July 2023 notification threshold now 20%

Due date for CGT Enacted provision: The Act has increased the threshold for reporting
a change in the underlying ownership of a licensee or a contractor from
Enacted provision: The due date for CGT payment will be the earlier 10% - 20%.
of receipt of full purchase price by the vendor or registration of the
transfer.
Implication: This reduces the administrative burden of making such
disclosures to the Commissioner.
Implications: The High Court had invalidated paragraph 11A of the
eighth schedule which required a person to pay CGT on or before the Effective date: 1 July 2023
date of application for transfer of the property is made at the relevant
Lands Office. The new amendment is a reprieve to taxpayers as a
transferor will now be required to pay CGT on the earlier of when they
receive the full purchase price or when the transfer is registered.

Effective date: 1 July 2023

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Investment allowance - Dropped

Proposed provisions: The Bill proposed investment allowance at a

rate of 100% for hotel buildings, buildings and machinery used for
manufacture which are located outside Nairobi and Mombasa.

Notably, the investment allowance would not apply to investments

which, due to the nature are required to be located outside Nairobi
City and Mombasa.

Implication: The proposal would mean that companies in sectors such

as agricultural or mining would not enjoy the accelerated investment
allowance, which would disincentivize investors, especially in the
infrastructure space, where projects, due to their nature, can only be
located outside the counties of Nairobi and Mombasa.

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Income Tax -Withholding Tax

WHT on sales promotion, marketing and advertising services Property management companies to be appointed as
withholding tax agents
Enacted provision: Introduction of withholding tax on sales promotion Enacted provision: The Commissioner can now appoint property
and advertisement fees paid to resident persons in excess of KES 24,000 managers as withholding tax agents. The appointed tax agents will be
per month at the rate of 5% of the gross amount. required to deduct rental income tax at a rate of 7.5% and remit the
same together with a return within 5 working days following the date
of deduction.
Implication: Marketing and advertisement services have remained out
of the ambit of withholding tax due to lack of clarity in the law. The Implication: The move will bolster KRA’s efforts to encourage
change brings these payments under the WHT ambit. compliance by rental property owners within the tax net and
enhance the tax base. However, the 5 days timeline for remittance
Effective date: 1 July 2023 of the tax will be administratively onerous.

Effective date: 1 July 2023

WHT on digital content monetisation
Enacted provision: Payments for digital content monetisation are now
subject to withholding tax at 5% for residents and 20% for non-residents. Due date for withholding tax
Enacted provision: The Act has amended the current WHT due date
Implication: The Act brings into the tax net, digital content creators or from the 20th day of the month following the payment date to within five
influencers in the wake of the growth of this sector. It is important to note working days after the deduction.
that the Act does not provide a threshold for the taxable amount implying
that any income will be taxable regardless of the value earned. Implication: While the new timelines are likely to bolster the
Effective date: 1 July 2023 government’s cash flows, it will increase the compliance burden.

Effective date: 1 July 2023

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Act

Income Tax-
Transfer Pricing

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Income Tax –Transfer Pricing

Restriction on deduction of WHT paid against income adjusted by an audit

The Act restricts taxpayers from getting a deduction for WHT paid on payments to non-
resident persons where an audit adjustment has been made in respect to such payments.

Implication:

This provision will predominantly affect taxpayers who may be subject to transfer
pricing adjustments arising from related party transactions, which may lead to part of
the expense being disallowed. Such taxpayers will not be allowed a credit for the
overpaid WHT against the transfer pricing audit adjustment.

The provision could lead to double taxation where the tax credit is not allowed in
Kenya and the income is taxed in Kenya and in the recipient’s jurisdiction.

Effective date: 1 July 2023

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Income Tax –Transfer Pricing

Definition of related person Where:
I - income receiving tax benefits;
The Act has included under Section 2 of the ITA the definition of a related Q - research and development expenditures made by the taxpayer, excluding
person to mean: acquisition costs and related party outsourcing costs;
T - research and development expenditures made by the taxpayer, including
”the case of two persons where a person who participates directly or acquisition costs and related party outsourcing costs; and
indirectly in the management, control or capital of the business of another P - intellectual property income including royalties, capital gains and any other
person” income from the sale of an intellectual property asset including embedded
intellectual property income calculated under transfer pricing principles.
Implication; This was previously defined under the Eighth Schedule on
Capital Gains and the Income Tax (Transfer Pricing) Rules, 2006. The The qualifying intellectual property is determined by apportioning the research
added definition does not take into account situations where a third party and development (R&D) activities made by the taxpayer excluding acquisition
participates directly or indirectly in the management, control or capital of costs of the IP and related party outsourcing costs.
both entities.

Effective date: 1 July 2023 Losses arising from the IP are be deductible only against IP income.

Qualifying intellectual property income Implication: The provision aligns Kenya’s preferential tax regimes with the
"nexus approach" under OECD BEPS Action 5 on harmful tax
New provision: practices. This approach was developed in the context of IP regimes, and it
allows a taxpayer to benefit from an IP regime only to the extent that the
The Act has introduced a restriction under section 18A subsection 4 on taxpayer incurred qualifying R&D expenditures giving rise to the IP income.
intellectual property income which is chargeable to tax under a preferential
This provision creates a nexus between benefiting from the preferential tax
tax regime.
regime and the extent to which the taxpayer has undertaken the underlying
R&D that generated IP income. It is implied that the non qualifying IP shall
The Act provides a formula to determine the qualifying intellectual property be taxed at the resident rates.
income that is subject to tax at a preferential tax rate as follows:
I= Q X P Effective date: 1st January 2024
T

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 Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Income Tax –Transfer Pricing

Mutual Administrative Assistance in Tax Matters Implication: The provision provide for administrative co-operation between
Kenya and other states in the assessment and collection of taxes.
New Provision. The Act has included mutual administrative assistance in
the ambit of multilateral agreements relating to international tax compliance This co-operation ranges from exchange of information, (spontaneous, on
that shall have effect in Kenya as stipulated in said agreements. request or automatic), tax examinations abroad, simultaneous tax
examinations and assistance in collection of taxes.
Implication: The provision will empower the Commissioner to enforce The Commissioner’s ability to collect taxes on behalf of other states will also
the assessment and collection of taxes under the Multilateral Convention improve Kenya’s capacity to request and obtain assistance in collection of
on Mutual Administrative Assistance in Tax Matters (MCAA). taxes from other states. The enforcement of the MCAA will increase the
ever-growing scrutiny on multinational enterprises as conventions are
The provision has set the stage for international cooperation in the broader in scope than most bilateral treaties in that they cover consumption
assessment and collection of taxes from taxpayers. taxes such as value-added tax and excise tax, in addition to income tax and
capital gains tax.
Effective date: 1 July 2023
Effective date: 1 July 2023
New Provision. The Act has also introduced a mechanism for recovery
and collection of tax claims by the Commissioner.

The Commissioner shall recover the tax claim subject to a request by the
competent authority of a party to the international tax agreement.

Where a tax claim is made against a person who is not a resident of the
requesting state, the Commissioner may recover the tax where the claim is
not contested. The tax claim shall be made under a prescribed form. The
proposal further outlines the prescribed format. Additionally, the proposal
empowers the Commissioner to commence proceedings for the recovery of
the tax claim in the event a person fails settle the tax due.

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Income Tax –Transfer Pricing

Country-by-Country reporting notification requirements for CBC Notification – Clarification on period of income
Multinational Enterprises Section 18D (1,2,3)
The Act has clarified the period of income for which the threshold applies
The Act requires each ultimate parent entity (UPE) resident in Kenya to file for the purposes of CBC notification. The period to be considered is the
a Country By Country (CbC) report with the Commissioner. All UPEs preceding year of income as presented in the group consolidated financial
resident in Kenya will be required to file a CbC report. statements. The Act also clarifies that the threshold applies to total
consolidated group turnover.
The Act has imposed an obligation on a constituent entity (CE) of an MNE
Implication: This has eliminated the ambiguity around the year of
that is resident in Kenya to file a CbC report. The following conditions have
income for which the KES 95billion turnover threshold applies and
to be fulfilled for a CE to file a CbC report in Kenya:
provides clarity on the turnover to be considered in the determination of
the threshold.
a) If the ultimate parent entity is not obligated to file a country-by-
country report in its jurisdiction of tax residence CbC Reporting - Clarification on UPE
b) The jurisdiction in which the ultimate parent entity is resident has
signed a current international tax agreement which Kenya is a party The Act has redefined the term ultimate parent entity as:
to but does not have a competent authority agreement with Kenya at • an entity which is not controlled by another entity and
the time of filing the country-by-country report for the reporting • owns or controls, directly or indirectly one or more constituent
financial year; and entities of a multinational enterprise group.
c) There has been a systemic failure of the jurisdiction of tax residence
of the ultimate parent entity that has been notified by the Implication: This has provided clarity from the previous definition
Commissioner to the constituent entity resident in Kenya. which brought confusion since it required a UPE to be resident in
Kenya for tax purposes, which would have restricted the applicability
Implication: These conditions aim at ensuring that the CE resident in of Section 18D to MNEs headquartered in Kenya
Kenya can be held responsible for submitting the CBC report. The definition is now aligned to the definition of a UPE under OECD
Effective date: 1 July 2023 BEPS Action 13.

Effective date: 1 July 2023

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Pay As You
Earn

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 Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Pay As YouEarn
Shares given to employees in lieu of cash a) has an annual turnover of not more than
emoluments by start-ups one hundred million Kenyan Shillings;
The taxable benefit on the shares received by b) does not carry on management,
employees in lieu of cash emoluments from professional or training business;
an eligible start-up shall be deferred and taxed c) has not been formed as a result of splitting
within thirty days of the earlier of: or restructuring of an existing entity; and
a) the expiry of five years from the end of the
d) has been in existence for a period of not
year of the award of the shares;
more than five years.
b) the disposal of the shares by the
employee; or
c) the date the employee ceases to be an
employee of the eligible start-up.
Further, the Act defines an eligible start-up
as a business incorporated in Kenya that:

Market value:
The taxable benefit shall be the fair market value of the shares at the tax due
date. Where the fair market value is not available the Commissioner shall assess
the value based on the last issued financial statements.

Implication: The amendment seeks to encourage start-ups to allow employees to benefit from
the growth of the company by issuing employees with shares. This is crucial as it eliminates the
immediate need to finance salaries and allows employees to benefit from the growth of the
company. Unlike normal shares, the tax point is deferred even though the benefit may accrue
immediately.
Effective Date: 1 January 2024

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Pay As You Earn

Market value for ESOPS – clarified! Taxation of club entrance and subscription fees
The Act has amended the definition of market value for shares provided
Club entrance and subscription fees will now be taxed on the employee
under an Employee Share Ownership Plan (ESOP) by amending the
where the same has not been taxed on the employer.
definition from ‘the market value when the shares were granted by employer’
to ‘the market value when the option is exercised by the employee’ where
shares are fully listed on any security exchange in Kenya. Implication: The employer can elect who bears the tax burden on club
entrance and subscription fees. This also removes the current ambiguity
The Act has also amended the definition of the market value where the
on double taxation of club entrance and subscription fees on both the
shares are not listed to the price which the shares are expected to fetch at
employee an employer.
the point of exercising the option.

Effective Date: 01 July 2023

Implication:
The amendment provides clarity on the market value of the shares
granted under an ESOP for purposes of computing the benefit accruing
to an employee. In both instances, the market value of the share is
determined at the point of exercising the option.
Additionally, this amendment removes the administrative responsibility
that the Commissioner would have undertaken to determine the value
of shares where the shares were not listed.
Effective Date: 01 July 2023

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Pay As You Earn

Relief for contributions to a post-retirement medical fund Mileage - Exclusion from tax
The Act has introduced relief on contributions made by a resident person The Act has excluded from taxation, travel and mileage claims that are
towards a post-retirement medical fund. The value of the relief is 15% of incurred during the performance of official duties, where the mileage
contributions capped at KES 60,000 p.a. claims are based on the standard rates approved by the Automobile
Associate of Kenya.
Implication:
Implication: This change reaffirms the practice of excluding mileage and
This provision will encourage individuals to take up post-retirement
travel reimbursements from employment tax, and also reinforces the
medical scheme to cater for medical costs in their post employment years.
limits within which such benefits may be extended to.
Effective Date: 01 January 2024
Effective Date: 01 July 2023

Unfettered benefit for public officers: Dropped

The Bill had proposed to exempt from tax any amount paid or granted to a
public officer to reimburse expenditure incurred in the performance of official
duties regardless of the ownership or control of the assets purchased.

Implication: This provision would have created a disparity in the

treatment of reimbursements between public and private sector workers.
It was also open to abuse especially where it appeared to suggest that
costs for purchase of assets could be reimbursed regardless of who owns
the assets.

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Pay As You Earn

New PAYE bands!
The Act has introduced two new PAYE tax bands with a tax rate of 32.5% and 35% on employment income above KES 6,000,000
and KES 9,600,00 per annum respectively.
The updated tax bands are as tabled below:

Amount (Per annum) PAYE Rate

On the first KES 288,000 10%

On the next KES 100,000 25%

On the next KES 5,612,000 30%

On the next KES 3,600,000 32.5%

On all income over KES 9,600,000 35%

Implication: The objective of the change is to shore up the tax revenue by increasing tax on employees earning more than KES 500,000 per month.
However, the anticipated increase in revenue may be negligible given that majority of employees in Kenya earn below KES 100,000 per month.
Effective Date: 01 July 2023

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Value
Added Tax

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 Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Value AddedTax
High pump prices Sealing loopholes in claiming of input VAT

Enacted amendment The Act has deleted section 5(2)(aa) of the Enacted amendment : The Act has amended Section 17(2) of the VAT Act to make it
VAT Act effectively moving petroleum products (excluding Liquid mandatory for a purchaser to have proper documentation, including invoices, and to
Petroleum Gas) to VAT at the standard rate of 16%. also ensure that the supplier has declared the supply before claiming input VAT.
Implication : With the full implementation of the Tax Invoice Management System
Implication : The VAT rate of 8% on petroleum products was
(TIMS), the expectation is that an invoice declared by the seller will be reflected on
introduced in the year 2018. This was after the transition clause
the purchasers input ledger. This amendment aligns with the implementation of
which provided for an exemption of the VAT on such products
TIMs where the purchaser will be able to confirm that the supplier has declared the
for a period of two years expired.
supplies before the purchaser claims input.
This will impact the prices of transport and production of goods,
As the TIMS functionality is yet to be fully realised, it remains a hurdle for taxpayers
increasing the inflationary pressure in the economy.
claiming input VAT as they do not have visibility of the supplier’s return.
Effective Date: 01 July 2023
Effective Date: 01 July 2023
LPG relief VAT on compensation of loss of supplies
Enacted amendment : The Act has amended the Second Schedule Enacted amendment : The act has amended Section 17 of the VAT Act by providing
to the VAT Act to zero-rate Liquefied Petroleum Gas (LPG). VAT of that a bona fide owner of taxable supplies, who has deducted input tax, and is
16 % on LPG was introduced through the Finance Act of 2020 but the compensated for the loss of the taxable supplies, shall account for VAT on the
implementation was suspended to July 2021 amid concerns over compensation received irrespective of whether the compensation includes VAT.
high living costs. Subsequently through the Finance Act 2022, VAT
was imposed on LPG at the rate of 8%. Implication : The amendment will impact compensation from insurance following the
loss of taxable supplies where input VAT had already been claimed. In cases where
Implication: By zero-rating VAT on LPG, it is expected that this the compensation includes VAT, the owner will be required to declare the
will reduce the cost of LPG and positively impact the climate compensation and remit the VAT. If the compensation does not include VAT, the
through use of clean energy. Input VAT incurred by the owner would have to deem the compensation to be inclusive of VAT. If not
suppliers of LPG will now be claimable. compensated, they would be out of pocket.

Effective Date: 01 July 2023 Effective Date: 01 July 2023

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Value AddedTax
Clarification on VAT registration requirements for digital service Exportation of taxable services
providers
Enacted amendment: The Act has reclassified the exportation of services
Enacted amendment : The Act has amended Section 34 of the VAT Act to from standard rated to zero-rated status
explicitly require persons supplying imported digital services over the
internet or an electronic network or though a digital marketplace to register
for VAT, whether or not they have met the KES 5 million threshold.

Impact : The Finance Act 2022 introduced the requirement to have non- Impact: . In 2022, the Finance Act moved the services from exempt to
resident suppliers of digital services register for VAT. However, based on standard rated. Exported services were subject to VAT at 16% while
the wording of the law, it was not clear if suppliers of digital services were exported services with respect to Business Process Outsourcing (BPO)
subject to the registration threshold.
were subject to VAT at 0%.
The change makes it clear that all suppliers of imported digital services
will be required to register for VAT irrespective of their turnover. The prevailing VAT regime was controversial because charging VAT on
exported services at 16% went against international best practice. On the
Effective Date: 01 July 2023 other hand, the VAT Act did not define a BPO leading to confusion on
what qualified for zero-rating and VAT at the standard rate.
Record keeping
The change provides clarity on the VAT treatment for exported services,
Enacted amendment - The Act has amended Section 43 of the VAT Act to
including BPOs. Input VAT cost incurred by exporters of will be claimable,
provide that tax records can be kept in any other place.
reducing the expense of providing the services.
Effective Date: 01 July 2023
Implication: The removal of this requirement will make it easier for
businesses to keep records anywhere in the world, in response to the
continued digitalization of operations and migration to cloud-based
services This may also reduce the costs and administrative burden
associated with investing to ensure that these records are kept in Kenya.
Effective Date: 01 July 2023

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 Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Value AddedTax
Place of supply for suppliers outside Kenya Refund of tax on bad debts
Enacted amendment : The Act has amended section 8 of the VAT Act to Enacted amendment : The Act has amended section 31 of the VAT
expand the definition of a supply made in Kenya by persons outside Kenya to Act to extend the time period within which a taxpayer may apply for
include a supply made to registered persons. refund of tax on bad debts from 3-4 years to 3-10 years.
The Act also clarifies that the approved refund will be applied to
Impact :This aligns the determination of place of supply of services to outstanding liabilities and the excess credited to the taxpayer’s ledger
cover both registered and unregistered persons for use against future VAT liabilities.
Effective Date: 01 July 2023. Impact : This change will allow taxpayers time to apply for refund of tax on
bad debts.
Time of supply for national carriers Effective Date: 01 July 2023
Enacted amendment : The Act has amended section 12 of the VAT
Act to exclude national carriers from the provisions of sub section 1
which provides time of supply to be the earlier of invoice date, date of
payment, date of certificate or date on which goods are delivered or
services performed.
National carriers will now declare supplies when the goods are
delivered or services performed.

Impact : This is a relief to the national carrier which has experienced

cashflow issues in the recent times.

Effective Date: 01 July 2023

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Value AddedTax
Clean-up of the VAT Act
The Act has changed tariff numbers in the VAT Act to align with the recent changes in tariff classifications in the CET 2022. Below are the changes:

Enacted Change Old New Tariff

numbers
Tariff Numbers
3003.41.00,3003.42.
Other medicaments, containing alkaloids or derivatives thereof, put up in measured
3003.40.00 00, 3003.43.00 and
doses or in forms or packings for retail sale
3003.49.00
Infusion solutions for ingestion other than by mouth not put up in measured doses or in forms or packings for retail sale 3003.90.10
and other medicaments consisting of two or more constituents which have been mixed together for therapeutic or 3003.90.00
prophylactic uses, not put up in measured doses or informs or packings for retail sale 3004.90.90
3005.90.11
White absorbent cotton wadding impregnated or coated with pharmaceutical substances or put up in forms or packings
3005.90.10 3005.90.12
for retail sale for medical, surgical, dental or veterinary purposes
3005.90.19

Malaria Diagnostic Kits 3002.11.00 3822.11.00

Vaccines for human medicine 3002.20.00 3002.41.00

Vaccines for veterinary medicine 3002.30.00 3002.42.00

Blood-grouping reagents 3006.20.00 3822.13.00

3921.90.10 and
Printed and unprinted Perforated PE film of other plastics 15-22 gsm 3921.90.00
3921.90.90
Diagnostic or laboratory reagents, of tariff number 3822.00.00 on a backing, prepared diagnostic or laboratory reagents
whether or not on a backing, other than those of heading 30.02 or 30.06, certified reference materials upon approval by 3822.00.00 3822
the Cabinet Secretary responsible for matters relating to health.

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Value AddedTax
Clean-up of the VAT Act
The Act has amended the tariff numbers in the VAT Act to align with the recent changes in tariff classifications in the CET 2022. The changes
included revision of tariff codes and tariff codes under description of items. We discuss these below:

Old
Tariff description New Tariff number
Tariff number

Discs, tapes, solid -state non -volatile storage devices, “smart cards” and other 8523.80.10 85.23 (All items under this
media for the recording of sound or of other phenomena, whether or not recorded, heading)
of tariff number 8523.80.10, including matrices and masters for the production of 87
discs, but excluding products of Chapter 37; software upon approval by the Cabinet
Secretary responsible for matters relating to health

Weighing machinery (excluding balances of a sensitivity of 5 c or better), of tariff 8423.31.00 8423.10.00

number 8423.31.00, including weight operated counting or checking machines;
weighing machine weights of all kinds upon approval by the Cabinet Secretary
responsible for matters relating to health

The Act has sanitized various tariff codes as the items are already covered under another HS code, including:
3002.19.00 - Other - Antisera, other blood fractions and immunological products, whether or not modified or obtained by means of biotechnological processes
Effective Date: 01 July 2023

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Change in Tariff Description

As part of the sanitization process, the Act cleaned up the tariff description while retaining the items still under exempt status:

Current Description New Description VAT Status

Fish and crustaceans, mulluscs and other aquatic invertebrates

Fish and crustaceans, molluscs and other aquatic invertebrates of
of Chapter 3 excluding those of tariff heading 0305, 0306 and Exempt
Chapter 3 excluding those of tariff headings 0305, 0306 and 0307
0307

Other medicaments, containing hormones or other products of Other medicaments, containing hormones or other products of
heading No. 29.37 but not containing antibiotics, not put up in heading no. 29.37, not put up in measured doses or in forms or Exempt
measured doses or in forms or packings for retail sale packings for retail sale

Medicaments containing other antibiotics put up in measured Other Medicaments containing antibiotics, put up in measured doses
Exempt
doses or in forms or packings for retail sale or in forms or packings for retail sale

Other, medicaments containing hormones or other products of

Medicaments containing adrenal cortical hormones, put up in
heading 29.37 Containing corticosteroid hormones, their derivatives Exempt
measured doses or in forms or packings for retail sale.
or structural analogue of tariff

Infusion solutions for ingestion other than by mouth not put up in

Other medicaments (excluding goods of heading No. 30.02,
measured doses or in forms or packings for retail sale and other
30.05 or 30.06) consisting of mixed or unmixed products, for
medicaments consisting of two or more constituents which have Exempt
therapeutic or prophylactic uses, put up in measured doses or in
been mixed together for therapeutic or prophylactic uses, not put up
forms or packings for retail sale.
in measured doses or in forms or packings for retail sale

Medicaments containing other antibiotics put up in measured Other Medicaments containing antibiotics put up in measured doses
Exempt
doses or in forms or packings for retail sale. or in forms or packings for retail sale.

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Change in Tariff Description

Current Description New Description VAT Status

Chemical contraceptive preparations based on hormones or Chemical contraceptive preparations based on hormones, on other Exempt
spermicides products of heading 29.37 or spermicides

Other instruments and appliances, used in dental sciences of tariff

Other instruments and appliances, including surgical blades, of
9018.49.00, Other ophthalmic instruments and appliances of tariff
tariff number 9018.49.00,9018.50.00,9018.90.00 used in dental
9018.50.00 and other instruments and appliances of tariff number Exempt
sciences upon approval by the Cabinet Secretary responsible
9018.90.00 upon approval by the Cabinet Secretary responsible
for matters relating to health
for matters relating to health

Artificial teeth and dental fittings of tariff numbers 9021.21.00, Artificial teeth of tariff number 9021.21.00, other dental fittings of
9021.29.00 and artificial parts of the body of tariff numbers tariff number 9021.29.00 and other artificial parts of the body of Exempt
9021.31.00, 9021.39.00, 9021.50.00 and 9021.90.00 upon tariff numbers 9021.31.00 and 9021.39.00 and other appliances of
approval by the Cabinet Secretary responsible for matters tariff number 9021.90.00 upon approval by the Cabinet Secretary
relating to health. responsible for matters relating to health.

Electro-diagnostic apparatus, of tariff numbers 9018.11.00,

Electro -diagnostic apparatus, of tariff numbers
9018.12.00, 9018.13.00, 9018.14.00, 9018.19.00, and other
9018.11.00,9018.12.00,9018.13.00,9018.14.00,
apparatus, Instruments and appliances of tariff numbers Exempt
9018.19.00,9018.20.00, 9018.90.00 upon approval by the
9018.20.00, 9018.90.00 upon approval by the Cabinet Secretary
Cabinet Secretary responsible for matters relating to health.
responsible for matters relating to health.

Other artificial parts of the body: Pacemakers for stimulating Parts of the body: Pacemakers for stimulating heart muscles,
Exempt
heart muscles, excluding parts and accessories excluding parts and accessories

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Standard rated to Exempt

The Act has amended the following items by moving them from standard rated to Exempt:

Item Old rate New rate

Aircraft parts of heading 8801*

*The proposal is to extend the exemption to all Aircraft, spacecraft and parts Standard rated Exempt
thereof under Chapter 88 of the Common External Tariff.

Taxable goods for the direct and exclusive use in the construction and equipping
of specialized hospitals with a minimum bed capacity of one hundred beds,
approved by the Cabinet Secretary upon recommendation by the Cabinet Standard rated Exempt
Secretary responsible for health who may issue guidelines for determining
eligibility for the exemption.

Plant and machinery of chapter 84 and 85 acquired locally by manufacturers of

pharmaceutical products or investors in the manufacture of pharmaceutical
Standard rated Exempt
products upon the recommendation of the Cabinet Secretary responsible for
matters relating health

Taxable goods, inputs and raw materials imported or locally purchased by a

company engaged in special operating framework arrangement with the
Standard rated Exempt
government and is incorporated for purposes of undertaking manufacturing
activities including refining

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Standard rated to Exempt

The Act has amended the following items by moving them from standard rated to exempt:

Item Old Rate New rate

Taxable supplies made to or by a school feeding programme recognized

Standard rated Exempt
by the Cabinet Secretary responsible for matters relating to education.

Taxable services imported or locally purchased by a company which—

a) is engaged in business under a special operating framework

arrangement with the Government; and
Standard rated Exempt
b) is incorporated for purposes of undertaking the manufacture of
human vaccines or other manufacturing activities including refining;
and whose capital investment is at least ten billion shillings

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Exempt –Standard rated

Item Old Rate New rate

Fetal Doppler-Pocket (Wgd-002) Pc and pulse oximeter-finger held (Gima brand) Pc of tariff
number 9018.19.00 upon approval by the Cabinet Secretary responsible for matters relating Exempt Standard rated
to health

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Standard rated to Zero-rated

Item Old Rate New rate

Inbound international sea freight offered by a registered person Standard rated Zero rated

All tea sold for the purpose of value addition before exportation subject to approval
Standard rated Zero rated
by the Commissioner of Customs.

Supply of locally assembled and manufactured mobile phones Standard rated Zero rated

Supply of motorcycles of tariff heading 8711.60.00 Standard rated Zero rated

Supply of electric bicycles Standard rated Zero rated

supply of solar and lithium ion batteries . Standard rated Zero rated

supply of electric buses of tariff heading 87.02. Standard rated Zero rated

Inputs or raw materials locally purchased or imported for the manufacture of

Standard rated Zero rated
animal feeds.

Bioethanol vapour (BEV) Stoves classified under HS Code 7321.12.00 (cooking

Standard rated Zero rated
appliances and plate warmers for liquid fuel)

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Retention of Zero rate on wheat/maize flour

Item Old rate New rate

The supply of maize (corn) flour, cassava flour, wheat or meslin flour and maize
Zero rated Zero rated
flour containing cassava flour by more than ten percent in weight .

The amendment is meant to clarify that the supply of maize (corn) flour, cassava flour, wheat or meslin flour and maize flour containing cassava flour by more
than ten percent in weight will be zero-rated, should the law be passed. Currently as worded, there are two conflicting provisions in the First and Second
Schedule of the VAT Act.

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Excise Duty

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 Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Excise Duty
Aligning of definition of excise control

The Excise Duty Act, 2015 makes reference to definition of excise control to
Section 23. However, the correct reference is Section 24, that defines excise
control. The Act has rectified this error by making reference to Section 24.

Implication: The intention of the Act is to align the reference to the definition
of excise control to the correct Section of the Act. Section 23 deals with the
commissioners notifying the licensee prior to suspension of the license while
section 24 covers excisable goods under excise control.

Effective date: 1 July 2023

Revocation of annual inflation adjustment

The Act has repealed annual inflation adjustment. Currently, the

Commissioner General has powers to adjust the specific rate of excise duty
once a year to take into account inflation.

Implication: This will cushion taxpayers against the high cost of living. The
previous provision imposed additional taxes as a result of inflationary
changes to prices which had the impact of making the effect of inflation
worse.

Effective Date: 01 July 2023

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Excise Duty
Introduction of Offences.

The Act has repealed the general offences section and introduced specific offences with a
fine of KES 5,000,000 or a term not exceeding three years or both upon conviction. These
offences include:

1. Defacing or printing over an excise stamp affixed on any excisable goods or package;

2. Being in possession of excisable goods on which stamps have not been affixed and
which have not been exempted from this requirements under law;

3. Acquire or attempt to acquire an excise stamp without authority;

4. Prints, counterfeit, makes or in any way creates an excise stamps without authority;

5. Being in possession of an excise stamp which has been printed, made or in any way
acquired without authority;

6. Being in possession of, conveys, distributes, sells, offers for sale or trades in excisable
goods without affixing excise stamps in accordance with the Act or Regulations; or

7. Being in possession of, conveying, selling, distributing, or trading in excisable goods

which have be affixed with counterfeit excise stamps.

Implication: This will assist in getting rid of illicit/counterfeit products in the market thus
protecting the society. Revenue leakage for both the government and manufacturers will also
be sealed.

Effective Date: 01 July 2023

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Excise Duty
Payment of Excise Duty by manufacturers of alcoholic beverages

The Act has introduced a change requiring all manufacturers of alcoholic

beverages to pay excise duty to the Commissioner within twenty-four hours
upon removal of the goods from the stockroom.

Implication: This will increase the cost of doing business as extra

manpower or efficient systems will be needed to ensure remittance of
the taxes within the twenty-four hour. This will also contribute to
increased liquidity of the government.

Effective Date: 01 July 2023

A 24-hour betting economy!

The Act has provided for the remittance of excise duty on betting and gaming
through a platform or other medium within 24 hours from the closure of
transactions of that day.

Further, the Commissioner has been empowered to require any other

taxpayer providing excisable services to remit excise duty within 24 hours
through a gazette notice.

Implication: While this will enhance cashflow for the government, it will be
cumbersome for taxpayers with significant number of transactions, to
comply as it will lead to additional administrative costs and will require
deployment of additional resources to meet the tight deadlines.

Effective Date: 01 July 2023

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Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Excise Duty Changes

Change in scope

Old Scope New scope Rate

White chocolate, chocolate in blocs, slabs or bars of tariff Nos.

1806.31.00, 1806.32.00, 1806.90.00 Imported white chocolate of heading 1704
Kes 40.37 per kg
Imported chocolate and other food preparations
containing cocoa of tariff nos. 1806.31.00, 1806.32.00
and 1806.90.00;
Kes 242.29 per kg

Imported Articles of plastic of tariff heading 3923.30.00

Articles of plastic of tariff heading 3923.30.00 and 3923.90.90.
and 3923.90.90.
10%
Motorcycles of tariff 87.11 other than motorcycle
Motorcycles of tariff 87.11 other than motorcycle ambulances and
ambulances, locally assembled motorcycles and electric
locally assembled motorcycles.
motorcycles
Kes 12,185.16 per unit

Implication: The exclusion of locally manufactured plastic articles will protect the local industries thus encouraging more investments. Electric motor cycles
are also exempted from excise duty encouraging use of clean fuel sources.

Effective date: 1 July 2023

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Excise Duty Changes

Change in excise duty rates on goods

Item Old rate New rate

Imported Glass bottles (excluding imported glass bottles for packaging of pharmaceutical 25% 35%
products)

Imported Alkyd 10% 20%

Imported Unsaturated polyester 10% 20%

Imported Emulsion VAM 10% 20%

Imported Emulsion - styrene Acrylic 10% 20%

Imported Homopolymers 10% 20%

Imported Emulsion B.A.M. 10% 20%

Implication: The increase in the excise duty rate on the imported products is to protect local manufacturers while increasing tax revenues.

Effective date: 1 July 2023

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Excise Duty Changes

Introduction of excise duty on new products

Item Old rate New rate

Imported fish N/A 10%

Powdered juice N/A Kes 25 per kg

Imported sugar excluding imported sugar purchased by a registered pharmaceutical manufacturer. N/A Kes 5 per kg

Imported cement N/A 10% of the customs value or Kes

1.5 per kg, whichever is higher
Imported furniture excluding furniture originating from East African Community Partner States that meet N/A 30%
the East African Community Rules of Origin

Imported paints, varnishes and lacquers of heading 3208, 3209 and 3210 N/A 15%

Imported non-virgin test liner of heading 4805.24.00 N/A 25%

Imported non-virgin fluting medium of heading 4805.19.00 N/A 25%
Imported cartons, boxes and cases of corrugated paper or paper board and imported folding cartons, N/A 25%
boxes and case of non-corrugated paper or paper board and imported skillets, free-hinge lid packets of
tariff heading 4819.10.00, 4819.20.10 and 4819.20.90;
Imported plates of plastic of tariff heading 3919.90.90, 3920.10.90, N/A 25%
3920.43.90, 3920.62.90 and 3921.19.90
Imported paper or paper board, labels of all kinds whether or not N/A 25%
printed of tariff heading 4821.10.00 and 4821.90.00

Implication: The Government seeks to collect more revenue from these items as well as safeguard the local market from cheap imports thus
promoting the local traders.
Effective date: 1 July 2023

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Excise Duty
Changes in excise duty on services

Item Old rate New rate

Telephone and internet data services 20% 15%

Money transfer services by banks, money transfer agencies and other financial service providers 20% 15%
Money transfer services by cellular phone service providers or payment service providers licensed under the national 12% 15%
payment system Act 2021

Betting 7.5% 12.5%

Gaming 7.5% 12.5%
Prize competition 7.5% 12.5%

Lottery (excluding charitable lotteries) 7.5% 12.5%

Fees charged on advertisement on television, print media, Act boards and radio stations on alcoholic N/A 15%
beverages, betting, gaming, lotteries and prize competitions

Implication

The decrease in excise duty on telephone, internet, and fees charged on money transfer services by banks, money transfer agencies and other financial services
may see an increase in the number of transactions effectively increasing the revenue for the Government.

The increase in excise duty on fees charged for money transfer services by cellular phone service providers may lead to a decrease in the number of transactions
thus may see a decrease in the excise duty collection. The move aligns the taxation between different money transfer platforms

The increase in excise duty on betting, gaming, prize competition and lottery is aimed at curtailing the consumption of services that are considered harmful while
increasing revenues to the government. The excise duty on advertisement is likely to lead to reduction in expenditure impacting media and advertising agencies.

Effective date: 1 July 2023

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Excise Duty
Inclusion of gaming

The Act has expanded the definition of amount wagered or staked to

include the amount of money placed by a person for an outcome in a
gaming transaction.

Implication: This widens the scope of excise duty leading to increased

revenue collection.

Effective date: 1 July 2023

Exempt Excisable Goods – Kits for mobile phones

Disassembled or unassembled kits for local assembly or manufacture of

mobile phones have been exempted from Excise Duty.

Implication: The exemption of these kits from excise duty may

incentivise the manufacturers of mobile phones to open assembly plants
in the country thus creating employment and earning foreign exchange on
export of the manufactured phone.

Effective Date: 01 July 2023

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Tax Appeals
Tribunal Act

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Tax Appeals Tribunal Act

Documents at appeal– Clean up

▪ Enacted provision: The Act has included appealable decisions as part

Excluded Provision
Security on Appeal to the High Court - DROPPED
of the bundle of documents to be filed before the Tax Appeals Tribunal.
▪ Excluded provision: The Finance Bill, 2023 had proposed to amend
▪ Further, the Act has widened the scope of documents to be filed the Act to introduce a requirement for tax payers to deposit 20% of the
together with the appeal to include any other document that may be tax in dispute or a security of an equivalent amount with the
necessary to enable the Tribunal decide the appeal. Commissioner before filing appeals to the High court.

Implication: The change aligns the Tax Tribunals Act to the Tax
Procedures Act and clarifies that taxpayers shall be required to provide The decision to exclude this provision is welcome given the opposition it
the tax objection decision together with the bundle of supporting received from stakeholders on the basis that it would violate the
documents which they seek to rely on. constitutional right to access justice.

The inclusion of such other documents as may be necessary for the

Tribunal to make a decision creates an avenue for taxpayers to introduce
documents considered vital to the appeal but may have not been
previously considered by the revenue authority.

Effective date: 1 July 2023

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Tax
Procedures
Act

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Tax ProceduresAct
Definition of a tax decision International Tax Agreements

▪ Enacted provision: The Act has amended the definition of “tax ▪ Enacted provision: The Act has amended Section 6A to include any
decision” to exclude tax refund decisions by the revenue authority. multilateral agreement or treaty entered by the Government in relation
to mutual administrative assistance in the collection of taxes as part of
▪ The Act has further amended the definition of a tax decision to include international tax agreements
both a demand for penalty or late payment interest

Implication: The amendment to the definition of a “tax decision” is a

clean-up since it is currently not clear whether refund appeals should be
Implication: Before the amendment, the international tax agreements
objected to or go directly to the TAT. After the effective date, refunds will
outlined in the TPA only related to international tax compliance,
be covered under Section 47 of the Tax Procedures Act which requires
prevention of evasion of tax or exchange of information on tax matters
that such decisions be appealed to the Tax Appeals Tribunal.
but not collection of taxes.

On the other hand, the fact that KRA’s demand for late payment interest
It is unclear if the current non-disclosure provisions (Sec 6A(2)) that
can now be objected to and appealed against as it will now be considered
apply to international tax agreements will apply to the multilateral
a tax decision, is good news to the taxpayer. This will be beneficial to
agreements for assistance in collection of taxes.
taxpayers as there was a gap in the wording which included only a
demand for penalties, and not interest, in the definition of tax decision.
Effective date: 1 July 2023
Effective date: 1 July 2023

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Tax ProceduresAct
Record Keeping Requirements for a Trustee Establishment of an Electronic system

▪ Enacted provision: The Act has amended Section 23 to bring resident ▪ Enacted provision: The Act has introduced a new Section 23A that
trustees who administer trusts registered in or outside Kenya within the gives the Commissioner powers to establish an electronic system
ambit of the record keeping provisions in the TPA. Under the new through which electronic tax invoices are to be issued and records of
change, resident trustees will be obligated keep all documents required stocks kept.
under a tax law and produce to the KRA on demand, whether the
income is generated in Kenya or not. ▪ The Act further imposes a requirement that a businesses will going
forward be required to issue electronic tax invoices through the system
Implication: Resident trustees will now be required to keep records for a and maintain a record of stocks in the system and that expenses without
period of 5 years as stipulated in the TPA. This will assist KRA to audit or valid electronic invoices will not be deductible for CIT purposes.
make assessments for trusts administered from Kenya where they deem
fit. This may be due to the fact that trusts are increasingly being used as ▪ The mandatory requirement for electronic tax invoices may exclude
a means to transfer and hold assets by wealthy individuals and emoluments, imports, investment allowances, interest, and similar
corporations for tax planning purposes. payments.

Effective date: 1 July 2023 ▪ The Commissioner may also by way of gazette, exempt a taxpayer from
requirements of the establishing an electronic system for tax invoices.

Implication: This amendment will align the TPA with the roll-out of the
electronic Tax Invoice Management System (eTIMS) in 2022.

The System shall give the Commissioner visibility of transactions and

. possibly also assist taxpayers in dealing with potential issues of disallowed
input VAT on the basis of insufficient documentation.

It is against this backdrop that the Act provides that deductions only be
allowed to the extent that they are supported by valid invoices subject to
the exclusions listed.

Effective date: 1 September 2023

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Tax ProceduresAct
Amendment of an assessment Recovery of a tax claim in an International tax Agreement
▪ Enacted provision: The Act has widened the scope of the Enacted provision: The Act has empowered the Commissioner to recover
Commissioner’s powers to further amend assessments. or collect taxes as part of an international tax agreement that provides for
mutual administrative assistance in the recovery or collection of tax
▪ In cases where an assessment has already been amended, the claims.
TPA only allowed further amendments by the Commissioner on the
original assessment. ▪ Under the amendment, KRA will have the powers to enforce recovery
of tax claims upon request by the competent authority of a party to the
▪ The Act has deleted the term “original” in reference to assessments international tax agreement.
that the Commissioner may further amend
▪ Where the tax claim under this change is against a non-resident of
requesting state, the enforcement and recovery provisions shall only
Implication: The new amendment intends to remove the restriction on apply where the claim is uncontested.
subsequent amendments on assessments that had previously amended.
The new change may however lead to uncertainty on the part of taxpayers ▪ The Act has introduced a process to ensure recovery of the tax claim.
since they may be exposed to multiple amendments of assessments by This will include the Commissioner obtaining a High Court order for
KRA. preservation of funds.

Effective date: 1 July 2023 ▪ The Commissioner shall upon recovery deposit the taxes recovered
into a dedicated account in the Central Bank of Kenya. Thereafter the
recovered amounts shall be remitted to an account specified by the
requesting party.

Implication: The KRA will have powers to recover taxes due in another
jurisdiction from both Kenyan tax resident and non-residents. This will be
applicable in instances where Kenya and the other country are parties to
a multilateral agreement that provides for mutual assistance in the
recovery of tax.

Effective date: 1 July 2023

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Tax ProceduresAct
No more relief or abandonment in the cases of unpaid tax, interests or
penalties!
▪ Enacted provision: The Act has amended the TPA by deleting the provisions
allowing relief from pursing unpaid tax because of doubt or difficulty in recovery
of tax on the part of the Commissioner.

▪ The Act has also scrapped-off the Commissioner’s discretion to waive

penalties and interest for taxpayers or make recommendation for waiver to the
Cabinet Secretary on account of hardship, equity or difficulty in recovering the
tax.

▪ Previously, the Commissioner, with approval of the Cabinet Secretary, had

powers to refrain from collecting tax in instances where:
a) it may be impossible to recover an unpaid tax;
b) there is undue difficulty or expense in the recovery of an unpaid tax;
c) there is hardship or inequity in relation to the recovery of an unpaid tax;
or
d) there is any other reason occasioning inability to recover the unpaid tax.
Implication: The amendment places pressure on the Commissioner to take all
necessary measures to recover taxes owed. Taxpayers should brace themselves
for aggressive tax collection measures by the Revenue Authority to recover
unpaid taxes without abandonment or waiver as an option even in cases where it
may be administratively challenging or costly to recover the tax.

This change will create an additional burden for taxpayers who are inadvertently
caught out thus calling for diligence and ongoing internal checks to ensure
compliance on the part of taxpayers.

Effective date: 1 July 2023

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Tax Procedures Act

Amnesty on interests, penalties or fines on taxes due ▪ This amendment will incentivize out of court settlement of tax disputes
where principal taxes are agreed on and settled before 30 June 2024.
▪ Enacted provision: The Act has introduced a provision that bars the
Commissioner from recovering penalties, interest and fines on a tax ▪ However, penalties and interests in relation to taxes due after 1
debt where a taxpayer had paid the full principal tax before 31 January 2023, shall not be subject to waiver of any penalties or
December 2022. interests and the penalties.
▪ Where the principal tax had not been paid before that date, a taxpayer
▪ Waiver of interests and penalties will not be available after 30 June
may still apply for amnesty of interest, penalties or fines accrued up to
2024.
31 December 2022. The taxpayer will also be required to propose a
payment plan for the outstanding amount.
▪ The extinguishing of the provision for waiver of penalties and interests
▪ This amnesty shall only be granted if the person pays the principal tax post June 2024 may be a draw-back to the success of the without
not later than 30 June 2024, does not incur a further tax debt and prejudice out of court settlements often negotiated between the KRA
signs a commitment letter for settlement of all outstanding taxes due. and taxpayers on the basis that penalties and interest may be waived.

▪ Penalties and interest will start accruing again in instances where ▪ It will also be critical for tax payers seeking to benefit from this
amnesty had been granted but the principal tax has not been fully amnesty to review their tax ledgers to confirm clearance of historical
settled by 30 June 2024. penalties and interests as contemplated by the Act

▪ The amnesty shall not apply to tax payers liable for the tax avoidance Effective date: 1 September 2023
penalty.
Implication: This amendment assures tax payers of 100% waiver of
penalties and interests on principal taxes settled before 31 December
2022 by operation of the law.
Where tax is agreed for the period on or before 31 December 2022 but
not yet paid, the amendment extends an amnesty for taxpayers to apply
to the Commissioner for approval of the waiver involvement of the
Cabinet Secretary as was the case.

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Tax ProceduresAct
Agency Notices to Taxpayers’ Debtors Security for unpaid tax - Timeline for notification - DROPPED
▪ Excluded proposal: The Finance Bill had proposed to introduce a
▪ Enacted provision: The Act has set limits within which the requirement for the Commissioner to issue a notification of registration
Commissioner can issue a notice to collect tax from taxpayers’ debtors. of an interest against property as security for unpaid taxes within 14
▪ From the effective date, the Commissioner shall not issue a notice days from the date of registration.
unless:
a. The taxpayer has defaulted in paying tax under an agreed The committee recommended that the proposal be dropped to safeguard
payment plan; the taxpayers’ right to fair administrative action and to prevent violation of
b. Commissioner has raised an assessment and the taxpayer has taxpayers right to property.
not objected;
c. The taxpayer has not appealed against an objection decision Withholding VAT Agents
within the stipulated timelines; ▪ Enacted provision: The Act has amended the provision excluding
d. The taxpayer has made a self assessment but not paid the tax manufacturers whose value of investment in the last three exceed KES
due before the due date; or 3 Billion from commencement of the previous Finance Act from
e. The taxpayer has not appealed against an assessment withholding VAT by amending the commencement date of exclusion to
specified in a decision of the Tribunal or court. 1 July 2023.

Implication: The Finance Bill, 2023 had initially proposed to amend this
Implication: The amendment seeks to clarify the instances where the provision by deleting the exemption for manufacturer falling within the
Commissioner can issue an agency notice as opposed to the previous above scope. The Act has however retained the exemption and clarified
scenario where agency notices may be issued arbitrarily. that it applies from 1 July 2023.

Effective date: 1 July 2023 Effective date: 1 July 2023

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Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Tax ProceduresAct
Withholding VAT to be remitted within 5 working days Refund of overpaid tax

▪ Enacted provision: The Act has deleted the requirement to remit VAT ▪ Enacted povision: The Act has amended Section 47 to allow
withheld by the 20th day of the following month and now requires that taxpayers to offset outstanding liabilities and future tax liabilities
the tax be paid within 5 working days after deduction. against overpaid taxes.
Implication: From the KRA’s perspective, this amendment is intended to
The timeline for processing refund claims has been indicated as 120 days,
ensure constant in-flow of funds collected from taxpayers. Taxpayers
failure to which taxpayers’ application for refund shall be deemed to have
appointed as withholding VAT agents will suffer the administrative burden
been approved.
of ensuring that tax withheld is remitted in a timely manner. The 5 day
timeline presents a compliance risk as it is relatively short.
Implication: The amendment shall offer reprieve to taxpayers who shall
now be able to offset past liabilities against overpaid taxes. The law only
Effective date: 1 July 2023
allowed taxpayers to offset future liabilities against any overpaid tax.
Real Estate Agents
Effective date: 1 July 2023
▪ Enacted provision: The Act has introduced a provision that allows the
Commissioner to appoint persons collecting rent on behalf of others as Timeline for processing refunds
withholding agents. ▪ Enacted provision: The Act has introduced an amendment reducing
the time taken by the Commissioner to process tax refund claims from
Implication: This amendment is aimed at increasing collection avenues the previous 2 years to 6 months with a proviso that where the
for the government. It allow the Commissioner to net landlords whose Commissioner fails to refund the over paid tax, the overpayment shall
rents are collected by real estate agents. The change will give the be used to offset outstanding and future debts.
Commissioner visibility of transactions concluded through the real estate
agents. Implication: This amendment shall ensure accountability and protect
taxpayers from the undue burden occasioned by delayed in processing
the refunds.
The Commissioner shall have powers to revoke such agent appointments
at any time.
Effective date: 1 July 2023
Effective date: 1 July 2023

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Tax ProceduresAct
Validity of objection decision

▪ Enacted provision: The Act has introduced a 7 day timeline for provision of information where a taxpayer is notified that their objection decision
has not been validly lodged. The Act further empowers the Commissioner to issue an objection decision within 60 days where the taxpayer fails to
provide the supporting documents within the 7 days.

Implication: This amendment is intended to allow room for a taxpayer to remedy any gaps in the objection and to ensure that an objection is not
invalidated for lack of supporting documentation.

With this amendment, a tax payer may still have a future opportunity to appeal against a tax decision even where their objection notice is considered
not to have been validly lodged.

Effective date: 1 July 2023

Increase of ADR timelines

▪ Enacted provision: The Act has increased the time for parties to negotiate and potentially settle disputes under the Alternative Dispute Resolution
(ADR) framework from 90 days to 120 days.

Implication: This amendment is aimed at allowing ample time to settle any outstanding issues before closure of the ADR process. This will ensure
that matters which would otherwise be resolved out of court are not referred back to the court system for want of time.

Effective date: 1 July 2023

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
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Tax ProceduresAct
Data Management System Compliance with Electronic Tax System

▪ Proposed provision: The Act has empowered the Commissioner to ▪ Provision: The Act has repealed the provision under Section 83 which
establish a data management system to collect transaction data requires taxpayers to submit a return or pay a tax electronically. In its
including electronic invoice returns on ordinary transactions and such place, the Act has replaced this provision by widening the scope to
other commercial or financial transactions by taxpayers. include:
a. Issue an electronic tax invoice
▪ Further, the Act has introduced a provision for the Commissioner to
notify persons who will be required to submit such information. b. Submit a tax return or
c. Pay tax electronically
Further, the Act has increased the penalty for failure to comply with the
Implication: The creation of a data management & reporting system
electronic Tax System from KES 100,000 to an amount equal to two times
gives the Commissioner visibility to taxpayer transactions including the
the amount of tax due.
name and address of persons making payment and reasons for such
payment. Implication: The change in law is aimed at widening the scope of
offences in relation to the Electronic Tax System to include failure to issue
The intention and criteria of collecting the data is however not clear from an electronic tax invoice. The amendment is in line with the roll out of the
the Act. This change imposes additional data privacy compliance burden Tax Invoice Management System.
to process and store the data within the confines of the Data Protection
Act, 2019. The stiff penalty imposed under the Act will deter non-compliance.
Effective date: 1 September 2023
Effective date: 1 September 2023

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Tax ProceduresAct
Impersonation Sanctions for offences under the Act – Clean up
▪ Enacted provision: The Act has introduced an offence of ▪ Enacted provision: The Act has deleted the word “and” and inserted
impersonation of an authorized officer and imposed an imprisonment the word “or” to provide that a person convicted of an offence under
for a term not exceeding 3 years for the offence. the TPA shall be liable to a fine not exceeding KES 1,000,000 million
shillings or to imprisonment for a term not exceeding three years, or to
both
Implication: The amendment is aimed at deterring impersonation of
authorized KRA officers and protecting the general public from persons Implication: This is a clean up change.
who deceive taxpayers by pretending to be authorized officers.
Effective date: 1 July 2023
Effective date: 1 July 2023

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Tax ProceduresAct–Excluded Provisions

Restriction of new grounds on appeal post-objection stage - Concurrent Civil & Criminal Proceedings - DROPPED
DROPPED
▪ Excluded provision: The Finance Bill had proposed an
▪ Excluded provision: The Finance Bill, 2023 had proposed to amend amendment to the TPA to have tax criminal and civil proceedings
the TPA by limiting the discretion of the Tribunal and the Courts to to run concurrently.
allow taxpayers to introduce new grounds outside of those stated in the
objection notices previously.
Proposal dropped
Proposal dropped
The proposal would have placed a limit on taxpayers’ ability to seek a
Stakeholders made submissions against the proposed amendment on stay of proceedings thus violating their rights under Article 50(2)(c) of
the basis that the amendment would interfere with the court’s inherent the Constitution which guarantee taxpayers the right to adequate time
powers. The Committee agreed with the stakeholder submissions and prepare and mount a defense.
recommended that the proposal be dropped.

Tax Shortfall Penalty - DROPPED

▪ Excluded provision: The Bill had proposed to increase the penalty
for tax shortfall from 75% of the tax due to double the amount of tax
due on tax short fall.

Proposal dropped

The proposal to introduce a penalty of double the tax due while aimed at
deterring falsifying information and encourage cooperation and
transparency on the taxpayers’ part was excessive.

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Tax Appeals Tribunal Act-Excluded Provisions

Security on Appeal to the High Court -DROPPED

▪ Excluded provision: The Finance Bill, 2023 had proposed to introduce

a requirement for tax payers to deposit 20% of the tax in dispute or a
security of an equivalent amount with the Commissioner before filing
appeals to the High court.

This proposal has been excluded from the Act.

This proposal was strenuously opposed by different stakeholders on the

basis that it would violate the constitutional right to access justice. The
Parliamentary Finance Committee agreed with the submissions made by
stakeholders and recommended exclusion of the proposal to have
payment of security for tax appeals to the High Court.

Refund of Security upon successful appeal -DROPPED

▪ Excluded provision: The Finance Bill had proposed to impose a

timeline for refund of security paid where a taxpayer’s appeal is
successful.

This proposal has been excluded from the Act as it would not be
applicable without the requirement for a security on appeal.

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Other Acts

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Miscellaneous Fees & Levies Act (MFLA)

Reduction of Import Declaration Fee
▪ Enacted change: The Act revised the import declaration fee (IDF)
from 3.5% to 2.5%.

Implication: While the reduction of import declaration fees levy is aimed

at stimulating growth in the local manufacturing sector by reducing the
cost of imported inputs, it is an increase for developers of affordable
housing projects and manufacturers who previously enjoyed a
preferential rate of 1.5%.

Effective date: 1 July 2023

Inputs for construction of affordable housing
▪ Enacted change: The Act has deleted Section 7(2A) which provides
for a reduced rate for inputs to be used in affordable housing projects.

Implication: The deletion of Section 7(2A) means that inputs acquired

for construction of houses under the affordable housing scheme shall be
subject to IDF of 2.5%. This increase is at odds with the governments
commitment to provide affordable housing as increase in rate from 1.5%
to 2.5% will increase the housing cost.

Effective date: 1 July 2023

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Miscellaneous Fees & Levies Act

Export and Investment Promotion Levy
Enacted changes:

▪ The Finance Act has introduced a levy on goods imported into the
country for home use under the Third Schedule. The levy is payable by
an importer of such goods. The Finance Act provides for a levy of
17.5% of the customs value of cement clinkers, bars, rods and semi-
finished products of iron or non-alloyed steel. A rate of 10% will apply
on Kraft paper, sacks and bags.

▪ Exemption: Goods imported from the East African Community shall

be exempt from the export and investment promotion levy.

Introduction of a Third Schedule

Enacted changes: The Act has introduced a Third Schedule to the Act to
provide for goods subject to export investment promotion levy.
Implication: The proposed introduction of the levy aims at protecting
local manufacturers. While this is a commendable move, it shall be
interesting to see whether the government will hold the local
manufacturers accountable to ensure that local consumers are
protected from low quality products and that the local industry products
retain a competitive edge in the global markets.
The Finance Act provides the effective date for the levy as 1 July 2023
while the Third Schedule which provides the rates and the goods subject
to the levy takes effect on 1 September 2023. This discrepancy will need
to be resolved.
Effective date: 1 July 2023
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Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Miscellaneous Fees & Levies Act

Reduction of Railway Development Levy (RDL) Reduction of Export Levy
Enacted change: The Act has reduced the railway development levy from Enacted changes: The Act has amended the MFLA by reducing the export
2.5% to 1.5%. levy on leather and leather products classified under tariff numbers
4101.20.00 to 4302.20.00 from 80% to 50% or USD 0.52.
Further, the Act deleted the reduced rate of 1.5% for inputs for use in the
affordable housing scheme. Implication: The amendment is aimed at stimulating growth in the
leather and leather products value chain in line with the government’s
Implication: The reduction of the Railway Development Levy shall commitment to the bottom up economic transformation agenda. The
reduce the cost of imports and incentivize growth in the local move however, appears contrary to the government policy to promote
manufacturing industry by reducing the cost of raw materials. local leather value addition

Effective date: 1 July 2023 Effective date: 1 July 2023

Aircraft Exemption
Goods for use in diplomatic missions
Enacted changes: The Act has widened the scope of the exemption
Enacted changes: The Act amended the Second Schedule by redefining provided for aircraft to include all aircrafts, spacecrafts and part thereof as
the scope of the exemption from import declaration fees for gifts and provided for under Chapter 88 of the Common External Tariff, 2022.
supplies to consular missions to restrict the exemption to goods for official
use by diplomatic and consular missions, United Nations and its agencies
Further, under the Second Schedule, the Act has also exempted from RDL
and institutions.
and IDF any other aircraft spare parts including aircraft engines imported by
aircraft operators or persons engaged in the business of aircraft
Implication: The amendment is aimed at streamlining the goods maintenance upon recommendation by the competent authority responsible
exempted from import declaration fees and restricting the exemption to for civil aviation.
goods for official use as opposed to the previous provision which allowed
an exemption for gifts. This provision shall safeguard against revenue Implication: The amendment widens the scope of exemption to not only
leakage arising from misuse of the exemption for personal gain. aircrafts but space crafts and attendant parts. The changes will reduce
the cost of these goods.
Effective date: 1 July 2023
Effective date: 1 July 2023

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Miscellaneous Fees & Levies Act

Goods for use by Kenya Defence Forces and National Police Service

Enacted change: The Act has widened the scope of exemption for
Kenya Defence Forces and the National Police Service by including all
goods, including the “all materials and supplies” to the existing
exemption from IDF.

Previously, the exemption was limited to equipment, machinery and

motor vehicles for official use.

Implication: The amendment is aimed at reducing the cost of acquiring

goods and materials necessary for execution of the Kenya Defence
Force and National Police Service mandate.

Effective date: 1 July 2023

Liquified Petroleum Gas

Enacted changes:The Act has introduced an exemption of liquified

petroleum from IDF.

Implication: The exemption will reduce the cost of liquified petroleum

in line with the government's commitment to bring down the cost of
LPG and make it accessible to taxpayers.

Effective date: 1 July 2023

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Other Acts
The Retirement Benefits (Deputy President and State Officers) Act
Enacted change: The Act has repealed provisions outlining
circumstances where benefits may not be paid to the Deputy President
and Other State Officers covered.
▪ Previously, the benefits could be discontinued in instances where the
person was:
a) guilty of gross misconduct;
b) was in wilful violation of the constitution;
c) had been convicted and imprisoned for a period of more than three
years; or
d) had continued to engage in activities of a political party after ceasing
to hold office.

Implication: The repeal means that retired Deputy Presidents, retired

Vice Presidents, retired Prime Ministers and other senior officers,
including Speakers of Parliament, retired Chief Justice and Deputy Chief
Justice will not be denied their retirement benefits under any of the
circumstances previously outlined by the Act.
This may be viewed as a departure from the spirit of Chapter 6 of the
Constitution on leadership and integrity. Government officials may not
have the motivation to comply since law they would be protected from
consequences of violation of the constitutional duty to uphold integrity.
Effective date: 1 July 2023

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Other Acts
The Retirement Benefits (Deputy President and State Officers) Act The Retirement Benefits (Deputy President and State Officers) Act
Enacted change: The Act now provides that full medical cover will be
Enacted change: The Act states that the following benefits will be available
to entitled persons upon retirement or cessation of holding office: provided to children of Retired Chief Justice, Deputy Chief Justice, Prime
Minister, Deputy President/Vice President and those of the Speakers of
a) Monthly pensions at 8% of the person’s last monthly salary while in both the National Assembly and Senate.
office; and
Implication: Similarly, this will lead to increased recurrent expenditure
b) a lumpsum payment on retirement equal to one year’s salary paid for due to the expanded coverage of persons receiving the prescribed
each term served in office. benefits which are expected to be funded from public funds.

▪ However, the entitled persons will not be entitled to any other benefits
under the Act until they retire or cease to hold office.
Effective date: 1 July 2023
▪ Further, the Act repealed the provision which states that benefits
already received by persons under any other law or policy shall be set-
off against the benefits due under this Act.
▪ Notwithstanding the above, the Act states that any entitled persons
who qualify for pensions and benefits under the Act in addition to
pension under the Parliamentary Pensions Act, will be eligible to
receive both.

Implication: The new change will lead to an increase in the Public

Wage Bill and will have a negative impact on taxpayers finances in
future due to the added costs related benefits for retired senior
government officials.

Effective date: 1 July 2023

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Other Acts
The Betting gaming and Lotteries Act Kenya Revenue Authority Act

Enacted changes: The Kenya Revenue Authority will now have authority
Enacted amendment: The Act now stipulates that the collection of taxes in
to establish an institution to provide capacity building for its staff, the
relation to gaming revenue, lotteries shall be in line with the Tax
general public and other jurisdictions.
Procedures Act, 2015.

Implication: The amendments seeks to align collection of taxes under the Implication: The amendment shall provide clarity on the purpose for
Act to be enforced by KRA to avoid ambiguity. establishment and mandate of the institution established by the
Authority for capacity building. Previously, the wording merely stated
Effective date: 1 July 2023 that the capacity building was for the better carrying out of KRA’s
functions.
The Kenya Road Boards Act – Annual Roads Programme
Effective date: 1 July 2023
Enacted amendment: The Act has introduced submission of annual
estimates together with a collated annual roads programme.

Implication: This new provision will ensure accountability and efficiency in

the review and approval process at both the Kenya Road Boards level and
parliament level.

Effective date: 1 July 2023

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Other Acts
Unclaimed Financial Assets Act Affordable Housing Levy under the Employment Act
Enacted amendment: The Act widened the scope of persons entitled to
Enacted amendment: The Act has introduced a mandatory affordable
receive payment or delivery of an asset to include persons designated by the
housing levy to be paid by both the employer and employee at a rate of
rightful claimant.
1.5% of the employees’ gross salary. The housing levy is to be used
Previously, payment or delivery of assets was limited to the person who exclusively for development of affordable housing and associated social and
made the claim. physical infrastructure and provision of affordable home financing.
Implication: This change will allow flexibility in who may receive
assets approved for disbursement by the Authority. Similar to PAYE, the employer is to remit the housing levy not later than 9th
of the next month. Late payment penalty of 2% will apply every month on
Effective date: 1 July 2023 any amount unpaid by the due date.

Statutory Instruments Act Implication: The new change is aimed at achieving the government’s
Enacted change: The Act has deleted provisions relating to automatic commitment to access to affordable housing under the Big Four agenda.
revocation of statutory instruments after 10 years. The imposition of a mandatory contribution is unlikely to go down well for
most Kenyans especially with the removal of the contribution limit of KES
Implication: This amendment means that statutory instruments will 5,000 as had been previously proposed by the Finance Bill, 2023.
stay in force until expressly repealed.
The government is expected to publish guidelines for the deduction and
remission of the levy in time for the July 2023 payment which is due by 9
Effective date: 1 July 2023 August 2023.

Effective date: 1 July 2023

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New provisions not

in Finance Bill, 2023

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Other Acts –New Provisions to the MFLA

Expanded exemption for Human Vaccine Manufacturing No inflation adjustment on export levy
Enacted provision: The Act has widened the scope of the exemption
Enacted provision: The Act has repealed provisions for the annual
relating to human vaccines to include “goods imported for use in the
inflation adjustment on export levy. Previously, the Commissioner was
construction and maintenance of human vaccine or other manufacturing
allowed to adjust the export levy as per the formula prescribed in the Act.
activities including refining manufacturing plants as approved by the
Cabinet Secretary for the National Treasury on recommendation of the
Implication: The amendment is aimed at improving competitiveness of
Cabinet Secretary for Health.”
Kenya’s exports that are subject to the export levy. In the prevailing
Implication: The amendment expands the scope of the RDL and IDF environment of high inflation, the annual adjustments would make
exemption to cover additional manufacturing activities related to human Kenya’s exports pricier in the international market.
vaccines. This will provide further incentives for foreign investors and
potentially place Kenya as a manufacturing hub for vaccines. Effective date: 1 July 2023

Effective date: 1 July 2023

New exemptions from IDF and RDL
Enacted provision: The Act has exempted the following additional items
from IDF and RDL:
▪ the supply of denatured ethanol of tariff number 2207.20.00;
▪ bioethanol vapour (BEV) stoves classified under HS Code 7321.12.00
(cooking appliances and plate warmers for liquid fuel)

Implication: The amendment will encourage uptake of clean energy

solutions due to the lower costs.

This is line with the governments commitment to promote climate friendly

energy sources.

Effective date: 1 July 2023

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Other Acts –New Provisions

The Kenya Road Boards Act – Board membership changes Retirement Benefits Act – Islamic Banking
Enacted changes: The Act provides that pension funds set up
Enacted amendment: The Act has deleted the provision requiring the
exclusively for investing in Sharia-compliant funds will be exempt from
Permanent Secretary (PS) in the Ministry of Transport and
guidelines on restrictions relating to use of the fund.
Communications to be a member of the Kenya Road Board.

Additionally, the Act has reduced the Ministerial appointments to the Board Implication: The amendment is targeted at the Islamic banking
from eight (8) people to five (5). These appointments are from specified sector that has witnessed steady growth and uptake in recent years.
organizations under the First Schedule.
Effective date: 1 July 2023
The three organizations removed from the listed organizations under the
First Schedule are the Institute of Surveyors of Kenya, The League of Retirement Benefits Act
Kenyan Woman Voters and the Kenya Association of Tour Operators
Enacted changes: The Act has lowered the requirement for
Implication: The amendment is a clean up to ensure membership of the
administrators of pension schemes to have 60% Kenyan shareholding
Roads Board reflects the current government structure and relevant
to 33%. As it was previously, the local shareholding requirement will
stakeholders.
not apply if the entity is a bank or insurance company..
Effective date: 1 July 2023
Implication: The change will encourage foreign entities looking to
The Retirement Benefits (Deputy President and State Officers) Act apply to be pension scheme administrators due to the relaxation of
Enacted change: The Act has also amended the First Schedule relating to Kenyan shareholding requirements.
benefits provided to Retired Chief Justice, Deputy Chief Justice and Effective date: 1 July 2023
Speakers' of both the National Assembly and Senate. In lieu of a personal
assistant or secretary, the retired public officers are allowed to enlist a
chief liaison officer.
Implication: The new change introduces some flexibility on the profile of
support staff for the retired public officers.

Effective date: 1 July 2023

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Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Other Acts –New Provisions

Kenya Revenue Authority Act Alcoholic Drinks Act – Minimum input cost
Enacted changes: The Act has amended the First Schedule to give KRA Enacted changes: The new provision states that a person shall not
the powers to collect any taxes due under the Alcoholic Drinks Act, 2010. sell, manufacture, pack or distribute alcoholic drinks at a price below
the “minimum input cost.”
Implication: The amendment continues the recent trends of the
government designating KRA as the agency responsible for “Minimum input cost” is defined as the input cost published by KRA
collection of various duties, levies and taxes. This will promote through Excise regulations. However, it should be noted that currently
efficiency on the part of the government with regard to collection of there are no provisions in the (Excisable Goods Management System)
revenue. Regulations that provide for minimum input cost. It is also not
mentioned in the proposed amendments to the Regulations that was
Effective date: 1 July 2023 submitted for public participation earlier this year.
Kenya Revenue Authority Act
Implication: The amendment is intended to prevent loss of tax revenue
Enacted changes: The Act now stipulates that the KRA Board will through adulteration of alcohol. However, KRA are yet to specify how
appoint Deputy Commissioners in addition to its prior role of appointing this minimum input cost will be determined as there are currently no
the Commissioners. corresponding provisions in the Excise duty regulations.
In line with the above, the Act has curtailed the powers of the KRA Effective date: 1 July 2023
Commissioner who will now not be responsible for appointing heads of
departments at KRA.

Implication: The amendment will see the KRA Board having more
influence in the day-to-day operations of the revenue authority. The
Board will not only now be responsible for the appointment of
Commissioners but Deputy Commissioners as well.

Effective date: 1 July 2023

© 2023. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Finance Bill, 2023 Analysis 79
Preamble Income Tax – Income Tax – Pay As Value Added Excise Tax Appeals Tax Procedures Other Acts
Corporation Tax Transfer Pricing You Earn Tax Duty Tribunal Act Act

Other Acts –New Provisions

Export Processing Zones (EPZ) Act
Special Economic Zones (SEZ) Act
Enacted amendment: The Act has included a proviso relating to treatment
Enacted amendment: The Act provides that a special economic zone of goods brought out of the EPZ into the customs territory. The amendment
will include both customs and non-customs-controlled areas. provides that:

Special Economic Zones (SEZ) Act (i) goods whose content originates from the customs territory shall be
exempt from payment of import duties; and
Enacted amendment: The Act has amended the provisions on market
accessibility for SEZ goods to make reference to customs territory rather (ii) goods whose content partially originates from the customs territory
than “Kenya.” shall pay import duties on the non-originating component subject to
customs procedures.
Implication: The inclusion of both customs and non-customs-controlled
Implication: The amendment will make EPZ products that utilize EAC
areas in an SEZ will transform the SEZs from restrictive demarcated
inputs more competitive to the wider EAC region as they will not be subject
zones to more robust integrated investment parks where industries
to import duty upon removal from the EPZ.
correlate.

This is expected to provide for improved forward and backward linkages Effective date: 1 July 2023
between the SEZs and local and regional economies to maximize the
benefits of SEZs.

Effective date: 1 July 2023

Implication: The prior provision penalized SEZ enterprises that sourced

inputs locally if they subsequently sold the goods to the local market.

As result, the country has had the economy flooded by goods originating
from COMESA leading to investors considering relocation to the other
countries so that they can access the Kenyan market.

Effective date: 1 July 2023

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Contacts
Peter Kinuthia Clive Akora Stephen Ng’ang’a
Partner, and Head of Tax Partner, Tax and Partner, Tax and Regulatory
and Regulatory Services Regulatory Services Services
KPMG East Africa KPMG East Africa KPMG East Africa
T: +254 709 576 215 T: +254 720 068 088 T: +254 709 576 259
E: pkinuthia@kpmg.co.ke E: cakora@kpmg.co.ke E: swnganga@kpmg.co.ke

kpmg.com/eastafrica

© 2023. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.

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