Salaried Kenyans, mainly youth digital content creators and the middle class at large will have it harder under President William Ruto’s taxation plan following a raft of proposals that will hit their earnings.
In the Finance Bill, 2023, which carries tax proposals for the 2023/24 financial year, the National Treasury plans several actions that will leave Kenya’s middle class, who the government has always gone after in seeking more revenues, with more deductions.
The Bill proposes a 3 per cent deduction from workers’ basic salaries towards the National Housing Development Fund, to which the employer will make an equal contribution.
“An employer shall pay to the National Housing Development Fund in respect of each employee, the employer’s contribution at 3 per cent of the employee’s monthly basic salary and the employees contribute,” the Bill states.
Both the employer and the employee’s contributions are, however, capped at Sh5,000 per month.
Kenyans earning at least Sh500,000 monthly also face deeper tax chops as the Bill proposes to raise their income tax from 30 per cent to 35 per cent This will see a worker earning Sh500,000, pay over Sh200,000 in tax. The proposal comes at a time when President Ruto has been hard on the wealthy, even hinting at introducing a wealth tax.
But the pain will not befall only the salaried as Treasury also proposes to raid Kenya’s digital content creators, an industry that has attracted the youth, offering an alternative to a population category hard hit by unemployment.
The Bill proposes a 15 per cent tax on payments relating to digital content monetisation, as a withholding tax. The tax will have huge implications on thousands of youth who currently earn a living from the digital space and comes when the government has been aggressively driving investment in internet connectivity and technology to attract the jobless.
“In respect of payments relating to digital content monetisation, 15 per cent (withholding tax),” the Bill proposes in relation to the sector.
Treasury has also proposed to raise turnover tax for businesses with revenues from as low as Sh500,000, from 1 per cent to 3 per cent, a move that will hit more businesses classified under small and medium-sized enterprises (SMEs), which may not be stable.
“Section 12C of the Income Tax Act is amended in subsection (1), by deleting the words “Sh1 million but does not exceed or is not expected to exceed Sh50 million” and substituting therefore “Sh500,000 but does not exceed or is not expected to exceed Sh15 million,” the Bill proposes, on businesses to be slapped with the 3 per cent turnover tax.
Tax on every business
The tax is charged on every business, notwithstanding whether it has made a profit or a loss.
Consumers of various products will also pay more if the Bill’s proposals are adopted and enacted into law. Among new products proposed to attract Excise Duty in the new financial year include imported fish (Sh100,000 per metric tonne or 20 per cent of the value) and powdered juice (Sh25 per kilo).
Those who consume beauty products such as wigs, false beards, eyebrows and eyelashes, and artificial nails will be hit with a 5 per cent excise tax, as the government goes harder on the industry that has over the past decade grown significantly.
Cement importers will pay a 10 per cent excise tax per kg of the product, or Sh1.50 per kg, whichever is higher.
Other areas Treasury has proposed to slap taxes on include digital assets, targeting owners of platforms that facilitate the exchange or transfer of digital assets. The assets include cryptocurrencies, token codes and numbers held in digital form and generated through cryptographic means.
“The owner of a platform or the person who facilitates the exchange or transfer of a digital asset shall deduct the digital asset tax and remit it to the Commissioner. A person who is required to deduct the digital asset tax shall, within twenty-four hours after making the deduction, remit the amount so deducted to the Commissioner together with a return of the amount of the payment, the amount of tax deducted, and such other information as the Commissioner may require,” the Bill states.
It also adds that any person who receives rental income on behalf of the owner of the premises shall deduct tax and within 24 hours remit the amount to the taxman. This cuts the period the rental income tax is paid from the 20th day of the month, as has been the case.
Companies with tax disputes with Kenya Revenue Authority and who wish to pursue the dispute at the tax tribunal will be required to deposit an equivalent of 20 per cent of the disputed taxes with the tribunal, a move that could affect many companies’ cash flows and deter many from pursuing such disputes legally.
The Bill also proposes some reliefs, mainly to consumers and businesses, who have been slapped with annual inflation adjustment that has often raised the cost of consumer goods.
Employees of startups who receive shares from the companies they work for will also not be taxed on the value of the shares immediately, as the Bill proposes to defer the payment.
State targets per diems, allowances
Employees face tighter times as the State plans to tax any travel allowances exceeding the standard rates approved by the Automobile Association of Kenya (AA).
The Finance Bill 2023 proposes that the AA rates will be assumed to be the amount used, ending a common line of wastage of public funds through excessive claims.
“Notwithstanding the provisions of the sub-paragraph(ii), where an amount is received by an employee as payment of travelling allowance to perform official duties, the standard mileage rate approved by the Automobile Association of Kenya shall be deemed to be reimbursement of the amount so expended and shall be excluded in the calculation of the employee’s gains and profit,” the Finance Bill states.
The Finance Bill also targets club membership allowances.
“By inserting the following new paragraph immediately after paragraph(f) (fa) club entrance and subscription fees disallowed against employer’s income,” it says.
“Any amount paid or granted to a public officer to reimburse an expenditure incurred for the purpose of performing official duties, notwithstanding the ownership or control of any assets purchased,” it adds.
This comes amid proposals by the Salaries and Remuneration Commission (SRC) to eliminate four allowances for civil servants, translating to billions of shillings.
The commission has recommended the abolishment of perks including retreat allowance, sitting allowance for institutional internal committee members and task force allowance.
Presently, there are over 247 remunerative and facilitative allowances payable within the public service, up from 31 in 1999, straining the national bill through double payments. Besides trimming allowances, the SRC targets to cap allowances at a maximum of 40 per cent of a public worker’s gross pay.
Retreat allowance is currently paid to public officers participating in special assignments meant to review, develop and produce policy documents away from their work station.
The SRC also targets to scrap sitting allowance for members of internal committees which are constituted to assist the execution of the mandate of institutions.
Additional reporting by Elizabeth Kivuva