A three-judge bench at the Court of Appeal has ruled that the Finance bill 2023 is void and unconstitutional. The ruling by judges Kathurima M’Inoti, Agnes Kalekye Murgo and John Mativo follows the fall of the Finance Act 2024. Contrary to fearmongering and false flags raised by some politicians and political commentators, Kenya is not in any crisis. If the government is to simply follow the law, the country now falls back to tax laws defined by the Finance Act 2022.
In essence, Kenyan taxes that the Kenya Revenue Authority (KRA) collects are set in foundational tax laws that fall under Article 210 of the constitution. The article defines The Income Tax Act, the Excise Duty Act, the VAT Act, and the Customs and Excise Tax Act.
What the annual Finance Bills brought to parliament do, is make amendments to these existing acts. The amendments may raise, lower, introduce or even remove taxes stipulated in the four laws. Hence, the fall or annulment of any finance bill doesn’t stop the collection of taxes by KRA, meaning the government will still raise revenue.
What impact does the Court’s decision have on Kenyans and the ICT sector? We have a look at some of the highlights.
Excise Duty on Mobile Money, Phones and Sim Cards
The 2022 Finance bill introduced a 10 percent excise duty on imported phones. Despite the introduction of a local smart phone assembly plant, Kenyans largely rely on imported phones. This means there will not much respite when it comes to smartphone costs.
After the Court of Appeal ruling, customers who want to buy a new SIM card or replace theirs will also be charged an extra KES 50 for all SIM card purchases. There is also an additional excise duty of KES 50 for every imported SIM card. These are all tax provisions under the Finance bill from 2 years ago.
Read: Why Kenyans Will Pay More For Phones, SIM Cards from July 1
In 2022, the government set an excise duty on fees charged for money transfer services by banks, money transfer agencies and other financial service providers. Hence, the tax rate Kenyans will face is set to be 20%. Additionally, Excise duty on fees charged for money transfer services by cellular phone service providers, shall be twelve percent of their excisable value. This is a reduction from the 15% introduced in the Finance bill 2023. Its a bigger drop from the 20% proposed in the 2024 bill. This could mean a fall in Airtel Money and M-pesa charges after last year’s increase.
eTIMS Invoices No Longer Mandatory
Mandatory issuance of eTIMS invoices by businesses and use of the same for claiming deductible expenses is no longer necessary. After the passing of the Finance Bill 2023, KRA declared that effective January 2024, “Any expenditure or loss shall be not deductible if the invoices of the transactions are not generated from electronic tax invoicing management (e-TIMS)”. This meant that businesses could only claim tax deductions for expenses if they have invoices generated through the eTIMS system.
Withholding Tax on Digital Monetisation
Remember, the Finance Act 2023’s amendment to the Income Tax Act providing for digital content monetisation. The Bill introduced a withholding tax on digital content requiring that individuals or businesses earning income from activities like, advertising on websites, social media platforms, sponsorships, affiliate marketing and more pay a tax. It introduced a 5% withholding tax if the individual is Kenyan residents, and a 20% withholding tax if they are non-residents.
As this tax was completely new, reverting to the Finance Act 2022 will mean there will be no specific tax targeting income generated from digital content monetization in Kenya.
Take note, this is different from the 3 % digital service tax payable by people whose income from the provision of services and products is sourced through the digital marketplace. This tax was introduced in the Finance Bill 2020. The rate of the digital service tax was increased from 1.5 percent to 3 percent in 2022.
Betting Excise Duty in Finance Bill 2023
Kenyan betting and gaming companies that are mostly online will now required to pay Excise Tax of 7.5% on stakes. The firms go back to the rates that were implemented first on October 2022. This is a reduction from the 12.5% rate introduced in 2023.
