Finance Act 2023: Exporters, traders jittery over grey areas after court stay order
President William Ruto signing The Finance Bill to law at State House, Nairobi on Monday June 26.
Uncertainty looms over tax measures contained in the Finance Act of 2023 which had July 1st, 2023 as the effective date, with the country waiting with bated breath for the July 10 verdict from the High Court on the way forward regarding President William Ruto’s contentious revenue raising plan for the financial year 2023/24.
The uncertainty largely stems from the fact that despite the June 30 conservatory orders issued by the High Court temporarily suspending the implementation of the Finance Act 2023, the Energy and Petroleum Regulatory Authority (EPRA) proceeded to revise pump prices in line with the standard rating of VAT on fuel at 16.0 per cent from the previous 8.0 per cent.
Whereas charges over contempt of court orders have been sought by Busia Senator, Okiya Omtatah, against EPRA, some tax payers are uncertain as to what this means for tax adjustments whose effective date was July 1.
For withholding tax agents, July 7 marked the first fifth working day of the current financial year which, according to the Finance Act 2023, should be the day when agents who withheld tax on July 1st are required to have remitted the same to Kenya Revenue Authority (KRA).
The Finance Act of 2023 provides for the amendment of the Tax Procedures Act of 2015 to have withholding tax agents remit amounts collected to KRA within 5 working days, implying any withholding tax collected on July 1, the first day of 2023/24, have July 7 as the deadline for remitting the same with the authorities.
Tax Procedures Act
“Section 42A of the Tax Procedures Act is amended by deleting Section 4B and substituting it with the new section that the tax withheld under this section (withholding tax) shall be remitted to the Commissioner within five working days after the deduction is made”, the Finance Act 2023 provides.
With the High Court having issued conservatory orders barring the National Treasury from implementing the Finance Act 2023, however, withholding tax agents are now unclear as to whether they should adhere to the new provision of five working days or maintain the previous one which would see agents remit to KRA by the 20th of the following month.
“Given what we have seen with VAT on petroleum products, what assurance do we have that the government will not come demanding that agents should still have complied with the five working days guideline per the Finance Act of 2023? The truth is there is little safety in acting based on the orders much as you know they should be the guide”, says one tax consultant.
A key point of concern for agents is the provision of a late payment penalty of 5.0 per cent plus late payment interest of 1.0 per cent per month for the period that the tax remains not remitted to KRA.
Withholding Income Tax is tax withheld at source. A person making certain payments deducts tax, at the applicable rate, and remits it to the Commissioner on behalf of the recipient.
VAT on exported services
Another area of uncertainty is the subject of VAT on exported services.
The Finance Act of 2023 amended the Value Added Tax of 2013 to include exported services in the second schedule effectively July 1, implying they are now zero-rated for Value Added Tax unlike the previous environment under the Finance Act of 2022 where the same were subject to VAT at 16.0 per cent.
With the matter now in court while VAT on petroleum products has been standard rated in disregard to the conservatory orders, persons who are issuing invoices for professional services outside the country are now caught in a dilemma as to whether to include 16.0 per cent VAT in their invoices or not.
“If you raise a fee note at this point, you find it is safer to have the 16.0 per cent VAT component included just in case at the end of all this, the government makes a demand on the basis that during the period of the conservatory orders, status quo prevailed and Finance Act 2022 should have been used as the guide. Clients are, however, rebelling the VAT inclusion,” says a tax consultant in one of the country’s law firms.
Zero rating
Whereas the zero rating of the services presents a major win for the service providers, the uncertainty that dominates is whether KRA will table an argument that for the period in which the implementation of Finance Act 2023 was halted through conservatory orders, service providers should have applied the provisions of the Finance Act 2022 which slapped 16.0 per cent VAT on exported services, and therefore demand the collection.
Reached for comment by the Nation, the Office of the Deputy Commissioner in charge of Corporate Policy at the Kenya Revenue Authority indicated that it is unable to comment on any guide given to tax payers regarding these emerging issues given that the matter is still in court.
On July 5, High Court Judge, Mugure Thande, extended the conservatory orders barring implementation of the Finance Act 2023 until July 10 when she is expected to give the verdict.
