Club membership, PSVs on Treasury’s radar in proposed tax changes


Matatus at Kenneth Matiba Street in Nairobi on March 28, 2023.  

Photo credit: Dennis Onsongo | Nation Media Group

Kenyans who are part of members-only clubs and those who run passenger vehicle businesses are on the National Treasury’s radar as it looks to mobilise an additional Sh200 billion worth of tax revenue in the financial year 2023/24.

The Finance Bill 2023 proposes to amend Section 5 of the Income Tax Act to have club entrance and subscription fees disallowed against the employer’s income, implying that both the employee and employer will bear the tax burden should this sail through. Tax pundits have argued that going this route will amount to double taxation on club members.

Double taxation

“Pursuant to the Finance Act 2020, club subscription fees paid by an employer were no longer deductible expenses with effect from 1 January 2021. The proposal envisages that the fees are disallowable by an employer when they are not as per the current provisions of the Income Tax Act. If enacted as is, the same fees will be taxable on both the employer and the employee, leading to double taxation on the same payment,” said Daniel Ngumy, managing partner at Anjarwalla & Khanna.

Further, Treasury is proposing to extend its reach into the business of membership clubs through an amendment to Section 21 of the Income Tax Act. Currently, where three-quarters or more of a club’s income is drawn from members, it is deemed not to be conducting business and the receipts are therefore not subject to tax. Treasury is now proposing to have all club income taxed.

At the same time, the Bill proposes to amend the third schedule of the Income Tax Act to have advance tax on vans, pick-ups, trucks, prime movers, trailers and lorries, increased to Sh3,000 per tonne of load capacity per year from the current Sh1,500 or Sh5,000 per annum up from the current Sh2,400.

Advance tax

For persons who use saloons, station-wagons, mini-buses, buses and coaches for commercial purposes, Treasury is proposing to increase advance tax from the current Sh60 per passenger capacity per month or Sh2,400 annually to a new rate of Sh100 per passenger capacity per month or Sh5,000 annually.

These proposed changes touching on the transport sector are expected to pile additional pressure on the cost of living as operators comply with the proposal, which will take effect on January 1, 2024.

“The increase in advance tax on commercial vehicles compounds the misery of businesses as this increases their cost of doing business. As much as the advance tax is treated as a tax credit, it may have impact on the taxpayer from a cash flow perspective”, says PwC Kenya in its note regarding Bill.