Kenya Budget 2022: Government introduces new tax measures to boost revenues

Kenya's Cabinet Secretary for the National Treasury, Ukur Yatani, recently presented a Ksh3.3 trillion spending plan for the 2022/2023 fiscal year, accompanied by a series of tax measures designed to generate an additional 50.4 billion shillings in revenue. The proposed tax changes cover a wide range of areas, from increased tax rates to the expansion of the tax base and targeted exemptions for specific sectors. These measures are expected to have a significant impact on Kenyan taxpayers, with implications for various industries and the digital economy. Nicholas Kahiro, Manager for Tax Consulting Services at PwC, shed light on the potential effects of these tax proposals in a recent interview with CNBC Africa. Kahiro highlighted three key thematic areas in the finance bill which include the increased rates of taxation, such as the rise in capital gains tax from 5% to 15% and the increase in excise duty for betting and gaming sectors from 7.5% to 20%. Another prominent theme is the expansion of the tax base, with the inclusion of financial derivatives and the introduction of excise duty on advertisements related to the betting, gaming, alcoholic, and tobacco industries. Lastly, targeted exemptions were identified for sectors like pharmaceuticals and local vehicle assemblers, aiming to stimulate growth in these areas. The interview also addressed the government's decision to focus on 'low-hanging fruit' industries like breweries and alcohol for increased taxation, as they often yield higher revenue with relatively lower compliance costs. Furthermore, the plan to double the tax on big tech companies like Amazon and Netflix was discussed, raising questions about its impact on digital services in the region. The move is seen as an attempt to align Kenya's digital services tax rate with that of other countries. In terms of enforcement, the government is expected to utilize exchange of information mechanisms to ensure compliance in the digital economy. The conversation also touched upon the implications of the African Continental Free Trade Area agreement on tax policies, particularly in the context of the East African Community's customs union. While customs duties were not addressed in the recent tax proposals, the alignment of tax policies within the region is crucial as borders reopen post-COVID-19. One of the contentious proposals in the tax bill is the requirement for a 50% tax appeal deposit, which has raised concerns about access to justice for taxpayers. This provision limits the right to appeal by mandating a significant upfront payment if a case is taken to the high court after an unfavorable ruling at the tribunal level. The measure has sparked debate regarding its impact on cash flow, liquidity, and the overall business environment in Kenya. As the government aims to enhance revenue collection and support economic recovery, the implementation of these tax measures will undoubtedly shape the fiscal landscape and impact taxpayers across various sectors.