As we usher in the new year, Kenya braces for the final phase of tax implementations under the Finance Act, 2023. Signed into law by President William Ruto on June 26, 2023, and gazetted on June 27, the Act has seen a gradual rollout of tax measures throughout the year.
While most of the tax measures took effect from July 1, including the controversial Housing levy, a few others were introduced on September 1. However, the culmination of this fiscal change is set to occur on January 1, 2024.
One of the significant amendments includes the introduction of medical post-retirement relief. This amendment to Section 31 A of the Income Tax Act allows for tax relief for expenses incurred toward post-retirement medical funds. Retirees can now claim 15% of the amount contributed to their medical fund or a maximum of Sh60,000 annually.
Yet, amidst these reliefs, the Kenya Kwanza government, in its Medium-term Revenue Strategy for 2024-25 – 2026-27, signals intentions to remove certain tax reliefs considered counterproductive. This includes the possibility of eliminating personal relief, insurance-related reliefs, and mortgage relief, aiming to reshape tax brackets and potentially create a zero-rate band for low-income earners.
Another critical adjustment set to take effect on January 1 is the increase in advance tax rates for various vehicles. Vans, pick-ups, trucks, prime movers, trailers, and lorries will witness an increment from the current Sh1,500 per tonne of load capacity to a new range of Sh2,500 or Sh5,000 annually.
Owners will have to part with Sh160 per passenger per month (currently Sh60.0) or Sh5,000 per annum (currently Sh2,400), whichever is higher.
On the other hand, landlords and landladies will have something to smile about as come January 1, residential income tax will be reduced from the current 10 per cent to 7.5 per cent.
Additionally, residential income tax is slated to decrease from the current 10% to 7.5% from the start of the year. The government hopes this reduction will incentivize the construction of affordable housing units in line with its ambitious housing targets.
However, in a bid to ensure compliance, the government plans to introduce stringent measures. It aims to harmonize the rental income tax rate with corporate income tax and restrict tax relief deductions to transactions conducted and generated via the government’s eTIMS (electronic Tax Invoice Management System).
Moreover, the government intends to encourage local vaccine production by reducing the corporate tax from 30% to 10% for entities engaged in human vaccine manufacturing, aligning with the recent deal with Moderna to establish a manufacturing facility in Kenya.
Yet, as we look forward to these changes, there’s a looming uncertainty regarding the continuation of the medical post-retirement relief among other tax reliefs slated for potential removal in the upcoming years.
The Finance Act, 2023, aims to steer fiscal policies in line with Kenya Kwanza’s strategic goals. However, the impact and effectiveness of these changes will unfold gradually, impacting individuals, businesses, and the overall economic landscape.
As we embark on this new fiscal journey, the nation awaits to see how these tax adjustments will shape the socioeconomic trajectory in the coming years.
