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Kenyan Budget Includes Major Tax Overhaul

by Lorys Charalambous,, Cyprus

16 June 2015

The Kenyan Government has announced measures in its 2015/16 Budget to boost the tax take, in part to counteract an increase in government spending to record levels, and to "expand the revenue base and eliminate tax leakages."

The controversial and difficult-to-enforce five percent capital gains tax on the sale of shares, which was reintroduced on January 1 this year, is to be replaced by a 0.3 percent withholding tax on the transaction value of shares. The change is intended to boost compliance and ensure that the tax is enforceable.

In another move to increase compliance, Cabinet Secretary for the National Treasury Henry Rotich announced that there is to be a tax amnesty for landlords. As a further incentive, gross residential rent income below KES10m (USD100,000) a year is to be taxed at a lower income tax rate of 12 percent.

The Budget introduced a zero rate of value-added tax (VAT) for cross-border transportation services. Previously these supplies were exempt, meaning that Kenyan companies were unable to deduct VAT. Inputs for the local assembly of electronic devices used by schools will be newly VAT exempt, and the Budget newly places a twelve-month time limit on all VAT refund claims.

Kenya will introduce a new gaming tax regime. A tax rate of five percent of lottery turnover and bookmakers will be subject to a 7.5 percent rate on gross betting revenues.

In addition, to support the film production industry, all payments by foreign film producers to local actors and crew will be exempt from withholding tax, and goods and services purchased for use in film-making will be VAT exempt. A fund will also be established to compensate production companies for certain expenses.

The Budget proposed the introduction of a new Excise Bill, which will impose excise duties only on goods with "harmful effects," based on volume or quantity. These goods will include cigarettes and tobacco, alcoholic or sugar-sweetened beverages, fossil fuels, motor vehicles, and plastic bags. Goods with no harmful effects will no longer be taxable under new excise law.The Road Maintenance Levy will be increased by KES3 per liter of petrol or diesel, from its present level of KES9 per liter.

In addition, to simplify legislation and reduce cost of compliance, a Tax Procedure Bill is proposed to harmonize procedures across three parts of the tax code, covering VAT, excise duty, and income tax.

TAGS: individuals | capital gains tax (CGT) | compliance | tax | economics | business | value added tax (VAT) | tax compliance | tax incentives | mining | fiscal policy | law | real-estate | budget | oil and gas | excise duty | legislation | Kenya | tax breaks | construction | individual income tax | services | VAT refunds | Tax

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