Relief for businesses as KRA loses inflation tax reviews powers
Times Tower, the Kenya Revenue Authority headquarters in Nairobi. Businesses and investors have been handed relief as the government proposed to limit the power of the Kenya Revenue Authority (KRA) to effect annual excise tax reviews to cater to inflation.
Businesses and investors have been handed relief as the government proposed to limit the power of the Kenya Revenue Authority (KRA) to effect annual excise tax reviews to cater to inflation.
The newly published Finance Bill 2023 seeks to clip KRA’s Commissioner-General powers to adjust the excise duty on different commodities, based on inflation figures during the year.
The Commissioner General drew a mandate from the Excise Duty Act, 2015, and Miscellaneous Fees and Levies Act, 2016 to adjust, annually, the specific rates of excise duty/export levy to take into account the rate of inflation.
In the proposed law, the Commissioner-General will have to get the approvals of the National Assembly and the National Treasury Cabinet Secretary to effect such tax adjustments for inflation.
“The Commissioner may, by notice in the Gazette and with the approval of the Cabinet Secretary, exempt specified products from inflation adjustment after considering the circumstances prevailing in the economy in that year in respect of such products” the Bill states in part.
The proposed law requires that a notice of inflation adjustment on excise be laid before the National Assembly within seven days from the date of publication. The National Assembly would then decide on the notice within 28 sitting days of its receipt.
“The notice shall cease to have effect if a resolution disapproving the notice is passed by the National Assembly,” the Finance Bill says.
Unpredictability
The move will be good news to businesses that have been raising serious concerns about the lack of predictability within Kenya’s taxation system, with KRA adjusting the excise duty regularly, in an unpredictable manner.
Treasury Cabinet Secretary Njuguna Ndung’u last month gazetted the Excise Duty (Excisable Goods Management System) (Amendment) Regulations, 2023 that set new fees charged on 14 categories of excisable goods, including cosmetics, fruit juices, and alcohol.
The new stamp charges came barely five months after a 6.3 per cent inflation adjustment on specific excise tax rates that was effected on October 1, 2022, impacting cosmetics, confectionary, alcoholic and non-alcoholic beverages, including bottled water, and tobacco and nicotine products.
Three months before the inflation adjustment, there was an increase in excise taxes from July 1, 2022, by between 10 per cent and 20 per cent through the Finance Act 2022.
Among players in the economy who have previously raised an issue with the taxation framework, calling for a Taxation policy that would offer stability and predictability for businesses and investors include manufacturers, foreign investors and other local traders, and economists.
The latest adjustments by KRA were in October last year when the authority introduced a 6.3 percent inflation adjustment excise duty on cosmetics, confectionary, alcoholic, and non-alcoholic beverages, including bottled water, and tobacco and nicotine products.
“We urge the government to finalise and implement the National Tax Policy, with a focus on enhancing certainty and predictability in the tax code,” said Rajan Shar, chairman of the Kenya Association of Manufacturers.
In March, President William Ruto announced that the government was concluding the development of a national tax policy, that would offer predictability for businesses and investors, who will now plan well knowing how they will be taxed at least three to five years ahead.
Dr Ruto also announced that after much wait for an operational tax policy that would assure businesses of stability and predictability of taxation regime, his government was finalizing one.
“This (tax) policy that will enhance transparency in our tax regime will take effect by June 2023 and it will be in place for a minimum of three years. We are doing this so that you can make your investment decisions knowing exactly how the tax regime will look for the next three years,” the President said.
