Explanation: How the new taxes will affect foreign, local investors and all other taxpayers in Kenya Kenya News
- The finance law for 2021 introduced changes to various laws of parliament relating to taxation and related laws in the public finance sector
- Some of the taxes that have been introduced are the digital services tax and the excise tax on betting and jewelry.
- However, the 20% excise tax on imported glass bottles has been removed.
- Non-resident subcontractors operating in the extractive industries will pay a withholding tax of 10% against 5.6%
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President Uhuru Kenyatta signed the 2021 finance bill on Wednesday, June 30.
The law introduced amendments to various laws of parliament relating to taxation and related laws in the public finance sector.
These include the Insurance Act, the Capital Markets Act, the Pension Benefits Act, the Central Depository Act and the Stamp Duty Act.
Others are the Income Tax Law, the Value Added Tax Law, the Excise Duty Law, the Tax Procedures Law, the Law on Miscellaneous Charges and Levies, Tax Appeal Tribunal Act and Kenya Tax Administration Act.
Meaning of digital services tax and how to report in Kenya
Below are various taxes introduced and their implications:
1. Tax on digital services
The digital services tax is payable on the revenues generated by the services through the digital market.
It took effect on January 1. It is payable at 1.5% of the gross value of the transaction and is due when the payment for the service is transferred to the service provider.
Some of the services that will be billed for this tax are:
- Downloadable digital content such as mobile apps, eBooks, and movies.
- Premium services like streaming TV shows, movies, music, podcasts and other digital content.
- Subscription media such as news, magazines and journals.
- Electronic reservation or electronic ticketing services such as online ticket sales.
- Providing search engines and automated support services, including providing personalized search engine services.
- Online distance training via pre-recorded or e-learning materials including online courses and training.
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The persons concerned in this category are those who derive their income from an electronic network or the Internet.
2. Withholding tax
Withholding tax, also known as withholding tax, is a standard income tax paid to the state by the taxpayer in place of the income recipient.
This tax is deducted or withheld from the income of the beneficiary before it is disbursed.
The new law increased the withholding tax rate on the payment of service fees to non-resident subcontractors operating in the extractive industries from 5.625% to 10%.
This applies to non-resident subcontractors who do not have a permanent establishment (PE) in Kenya. Holders of an ES are subject to tax under the self-assessment regime applicable to resident companies.
WHT reduction on management fees
On the positive side, the withholding tax rate on management fees paid to non-resident subcontractors has been reduced from 12.5% to 10%.
The beneficiaries will be non-resident mining and oil subcontractors.
A guide on how to pay withholding tax on iTax Kenya
3. Personal income tax
Insurance relief on NHIF contributions
The law introduced tax relief for people who contribute to the National Hospital Insurance Fund (NHIF).
The amount of insurance relief to be claimed is equivalent to 15% of the premiums paid with a ceiling of KSh 5,000 per month.
All employees will benefit from this relief which should encourage more people to contribute to universal health coverage (UHC).
Tax breaks to cover TVET
The government has extended tax breaks for graduate apprenticeships to graduates of technical and vocational institutions (TVET).
Previously, only employers who hired university graduates received a tax deduction equal to 50% of wages paid if they hired at least 10 university graduates for a period of 6 to 12 months.
4. Excise duties
Reintroduction of the excise tax on locally produced sweets and chocolate
The law reintroduced an excise tax on locally made sweets of tariff heading 1704 at KSh 20.99 per kilo and white chocolate, chocolate in blocks, plates or bars of tariff codes 1806.31.00, 1806.32. 00 and 1806.90.00 at KSh 209.88 per kilo.
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This means that local manufacturers and consumers will pay more for the product. It entered into force on Thursday, July 1.
Reintroduction of excise on betting
An excise tax on bets at the rate of 20% of the amount wagered has been introduced by the Public Treasury.
The tax was removed in July 2020 after an outcry from betting companies.
The Kenya Revenue Authority (KRA) will now deduct KSh 20 from every Sh100 placed, regardless of the outcome.
Imposition of excise duties on jewelry, products containing nicotine
Imported jewelry would be subject to an excise tax of 10%.
Some of the items that will cost more include rings, bracelets, necklaces, brooches, earrings, neck chains, and watch chains.
The tax on products containing nicotine has been set at 5,000 KSh per kilogram.
Removal of excise duties on imported glass bottles
Cabinet Secretary to the Treasury Ukur Yatani removed the 20% excise tax on imported glass bottles, with beneficiaries to be importers of the materials from July 1.
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A 20% excise tax was imposed during the 2019/2020 financial year in order to protect local manufacturers.
5. Miscellaneous charges and levies
The Treasury CS Ukur Yatani would have the power to issue regulations prescribing common reporting standards in tax matters.
Some of the penalties and punitive sanctions for non-compliance:
- Making a false statement or omitting any information from the statement – fine of KSh 100,000 for each false statement or imprisonment for a term not exceeding three years or both.
- Failure to file a declaration by a reporting financial institution – fine of KSh 1 million for each failure.
- Failure to comply with an obligation or obligation for which no other sanction is prescribed – fine of KSh 20,000. There will be an additional fine of KSh 20,000 for each day (up to a maximum of 60 days) if the non-compliance persists.
Uhuru says Kenyans have to pay taxes
In February, President Uhuru Kenyatta called on Kenyans to accept fiscal responsibilities.
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According to the head of state, the taxes will help the government to carry out its development program.
He further said he would not cut taxes after the Kenya Revenue Authority introduced new taxes in January 2021.
“The only thing we can do is make it easier to remit taxes to avoid stalling business,” he said.
Source: Tuko Latest News