The Finance Bill, 2023 (“the Bill”) was published by the National Assembly on 4th May 2023 detailing the Government of Kenya’s proposed tax measures for the 2023-2024 financial year.
The Bill introduces a number of Income Tax, Value Added Tax (“VAT”) and Excise Duty amendments as well as changes to the administration of taxes in Kenya. We summarise in this Alert the key changes proposed under the Bill.
The Bill is set to undergo public participation and following the conclusion of the law-making process, the proposals in the Bill are due to come into force on 1st July 2023 save for certain amendments earmarked for implementation on 1st September 2023 and 1st January 2024.
- 1. INCOME TAX
The Bill proposes to amend the Income Tax Act (Cap. 470) Laws of Kenya (“ITA”) as follows:
- a. Taxing the Digital Economy
- I. Digital Asset Tax
With effect from 1st September 2023, Kenya proposes to introduce a digital asset tax applicable on income from the transfer or exchange of digital assets, defined as anything of value that is not tangible such as cryptocurrencies, Non-Fungible Tokens (NFTs), token codes, and any digital representation of value that can be exchanged, stored or transferred electronically.
The proposed digital asset tax rate is 3% of the transfer or exchange value of the digital asset. It is required to be deducted from the recipient of the income by the owner of any platform facilitating the exchange of digital assets and remitted to the Kenya Revenue Authority (“the KRA”) within 24 hours of the deduction.
As a result, non-resident owners of platforms will be required to register for tax in Kenya. A simplified registration regime is available under the existing Income Tax (Digital Services Tax) Regulation which, in our view, is proposed to be expanded to non-resident platform owners who are subject to the digital asset tax.
This proposal represents an opportunity for the KRA to expand the tax net and bring to tax more players in the digital economy. It is however necessary for the proposed digital asset tax paid by resident persons to be expressly recognised as a tax credit in computing and paying their income tax liability under the ITA given that income earned from digital assets is likely to be subject to annual income tax at 30% (for companies) or at the graduated scale of between 10% and 35% (for individuals).
II. Taxing Creatives: Withholding Tax on Digital Content
With effect from 1st July 2023, the Bill proposes to subject withholding tax of 15% to payments made to digital content creators who are resident in Kenya.
The amount deducted should be remitted to the KRA within 24 hours of deducting the withholding tax and making payment for the monetised digital content.
What constitutes digital content monetisation under the Bill is any entertainment, social, literal, artistic, educational, or any other material electronically offered for payment through any medium or channel. This includes advertisements, social media promotions, brand endorsements, marketing, subscriptions for online content, licensing digital content, and crowdfunding for content creators.
This proposal is aimed at widening the tax net to include income earned by Kenya’s growing digital creative economy. Nonetheless, the proposed withholding tax on monetised digital content is likely to introduce a punitive compliance burden on ordinary Kenyans when making numerous low-value payments or subscriptions for the consumption of digital content from local content creators. In the circumstances, it would be more appropriate to introduce a minimum threshold for payments in order to trigger the withholding tax on monetised digital content. We propose the adoption of the existing threshold for professional, management and training fees where withholding tax is only applicable on payments exceeding KES 24,000 in a month.
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This alert is for informational purposes only and should not be taken to be or construed as a legal opinion. If you have any queries or need clarifications, please do not hesitate to contact Lilian Renee Omondi, Partner, ([email protected]), Elly Obegi, Senior Associate, ([email protected]) and William Ochieng, Associate, ([email protected]) or your usual contact at our firm, for legal advice.
