Kenya should work on a predictable tax policy to avoid regular amendments that are hostile to investors.
Submitting views on the Tax Laws Amendment Bill in Nairobi, various institutions led by the Law Society of Kenya, The Institute of Certified Public Accountants of Kenya (ICPAK) and the Institute of Economic Affairs said regular changes on tax laws is making it difficult for businesses to make investment decisions in the country.
They said a stable tax regime allows businesses to consciously make investment decisions without worrying about the uncertainty and costs associated with reviews of taxation laws.
Making submissions before the National Assembly’s Committee on Finance and National Planning led by Molo MP Kuria Kimani they added that a look at Kenya’s taxation regime raises three significant concerns – lack of clear tax policy objectives; erratic changes in the tax code; and multiple taxation at the national and county levels of government.
Highlighting on the proposed tax amendments, IEA took issues with the proposed economic presence tax to replace digital service tax.
The proposed tax will be payable by a non-resident person whose income from the provision of services is derived from or accrued in Kenya through a business carried out over a digital marketplace and is at the rate of three per cent of the gross turnover earned by the non-resident.
Currently, non-resident persons are liable to pay digital service tax at the rate of 1.5 per cent of the gross turnover.
The institute argues that this increase in the tax rate is likely to face resistance from non-resident digital service providers.
This was one of the proposals that was contained in the Finance Bill 2024 and which the government seeks to reintroduce.
Law firm, Bowman’s took issues with the proposal to deem income paid out by a resident or non-resident person, being the owner or operator of a digital marketplace or platform with respect to digital content monetization, goods, property or services to be income accrued in or derived from Kenya.
According to the firm, this proposal though well-intentioned is likely to face resistance, especially by non-resident persons who may not derive any income from Kenya but would be required to deduct withholding tax at the rate of five per cent when making or facilitating a payment to a resident person.
To such non-resident persons, this would be an additional compliance burden. In addition, the Bill as drafted would also require non-resident owners and operators of digital marketplaces or platforms to deduct withholding tax when making payments to non-residents.
“This would mean that two non-resident persons would be subject to tax in Kenya. We note that there may be concerns as to whether such income is taxable in Kenya taking into account the international principles of taxation,’’ Bowman’s submitted.
Okoa Uchumi, an accountability consortium by civil societies has hailed the proposal seeking to increase the limits that have remained unchanged for close to nineteen ( 19 ) years despite the increase in the cost of living and increase in income levels.
The proposed law seeks to adjust
the taxation of employment benefits
by increasing the value of tax-free
meals provided to employees in a
canteen or cafeteria operated or
established by an employer from
Sh48,000 to Sh60,000.
