TAX CHANGES EFFECTIVE FROM 1ST JULY 2023
The Finance Act, 2023 (“The Act”) was assented by the President William Ruto on 30 th June 2023. The Act brought some changes in tax law which became effective from 1 st July 2023 and some changes with be effective from 1st September 2023 and 1 st January 2024.
In this alert we highlight the changes that came into effect from 1 st July 2023 and were halted by the suspension of the entire Finance Act by high court on 30th June 2023.
Following the successful appeal by the CS National Treasury and planning, on 28 th July 2023 the High Court Nairobi has lifted the conservatory orders which prohibited the implementation of the Finance Act, 2023, as a consequence the Finance Act 2023, is now effective.
Amendment to Section 35 (1) and Section (3)
In a move to widen the services subject to withholding tax, the Finance Act has inserted below services to be subject to withholding tax at the respective withholding tax rates applicable to both resident and non- resident;
- Digital content monetization and
- Sales promotion, marketing, and advertising services
Change in individual tax rates
The Third Schedule to the Income Tax, in Head B has been amended by substituting the individual annual rates of tax by the following;
| Bracket | KShs. Per Annum | KShs. Per Month | Tax Rate |
|---|---|---|---|
| On the first | 288,000 | 24,000 | 10% |
| On the next | 100,000 | 8,333 | 25% |
| On the next | 5,612,000 | 467,667 | 30% |
| On the next | 3,600,000 | 300,000 | 32.50% |
| On all income over | 9,600,000 | 800,000 | 35% |
Exportation of services
The Finance Act 2023 has repealed paragraph 23 of Second schedule to the Value Added Tax Act,2013 and provided that exportation of taxable services is now zero rated. The exportation of Business Process Outsourcing services has been deleted from the Finance Act, 2023. Hence all exported taxable services shall be zero rated.
Affordable Housing Levy
The Finance Act, 2023 has amended the Employment Act, 2007 and introduced a new Section 31B, which provides that each employee and employer shall pay a monthly levy to be known as Affordable Housing Levy at the rate of one point five per centum of the employee’s monthly gross salary and the employer to match with the same amount.
Section 31C, provide that it’s the responsibility of the employer to deduct the levy from the employee’s gross monthly salary and set aside an equal amount as employer contribution per employee and remit not later that the 9 th day after the end of the month in which the payment was due, failure to which a penalty equivalent to two percent of the unpaid fund will be imposed.
The levy shall be remitted through iTax and the PAYE return has already been updated to accommodate the same.