Treasury Cabinet Secretary Ukur Yatani has moved to arm the taxman with a new weapon to help it get difficult taxpayers to pay their fair share of taxes.
In the Finance Bill 2021, Mr Yatani wants to empower the Kenya Revenue Authority (KRA) to seek help from other authorities for tax collection. One of the immediate targets of this proposal is to deal with the headache of collecting the controversial Digital Service Tax.
This means that KRA can enlist the services of regulators and other government agencies to deny a non-compliant company a licence, or exert any appropriate measures to ensure the entity pays tax.
To boost universal access to health, Mr Yatani is proposing to introduce a National Hospital Insurance Fund (NHIF) insurance relief. Also, the rebates for internships will be extended beyond universities to also cover technical and vocational education training institutions.
There will also be no room for group Value Added Tax (VAT) registrations, should the new tax Bill get Parliament's nod.
"Group entities will not be able to register for VAT as provision enabling this has been deleted," said Mr Samuel Njoroge, a tax expert at Taxwise Africa Consulting LLP.
Businesses that hire or lease passenger motor vehicles will also now have to pay the 16 per cent VAT. In the past, only new vehicles attracted the tax.
The Bill has also lined up several proposals to change the Tax Procedures Act, such as the deletion of the withholding VAT exemption provision. This means that even if a company can demonstrate that it will be in a refundable position for the next 24 months, no taxpayer will be exempted from withholding VAT.
Criminal tax cases
Tax experts say this provision will increase the VAT refunds nightmare for anyone in a refundable position, such as manufacturers and flower companies.
Also, if the Bill is approved by Parliament, civil and criminal tax cases will be allowed to proceed concurrently, unlike the current scenario where one case has to be completed before the other commences, with the legal dispute taking a long time, after which the tax can be paid.
The fact that another case is ongoing will no longer be a basis for a stay, prohibition or any delay by another court. This was seen in the Keroche and African Spirits cases.
The KRA commissioner general will also be required to give a report to the Treasury boss outlining any tax penalties and interest abandoned under refrain from assessing tax for income earned outside Kenya.
The new Bill also provides for the implementation of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters - exchange of information to curb tax avoidance. Kenya signed on the tax information exchange assistance last year, becoming the 94th jurisdiction.
It has also introduced the common reporting standards provisions, that will allow financial institutions to exchange information across various jurisdictions.
The Bill introduces a Sh100,000 penalty for each false statement by a taxpayer or a jail term of three years, or both, as well as a Sh1 million fine for financial institutions for each failure they do not report.
VAT tax-exempt list
It will be good news for KenGen and other players in the energy sector, after geothermal, oil and mining, solar and wind energy generation supplies were put on the list of exempt items.
Other items that have been placed on the VAT tax-exempt list are medical ventilators, various medical equipment, real estate investment trusts (Reits) assets transfer and exported services. Previously, exported services were zero-rated and the change targets to reduce VAT refunds.
KRA recently lost a big Coca-Cola case on exported services cases. The downside of this move is an increase in the cost of supplies as input VAT will not be claimed.
The limit to carry forward losses by companies was removed. Previously, it was capped at nine years. Tax experts note that this is a good provision, as companies with tax losses can carry forward the losses without limitation.
The capitalisation rules have also been updated to be 30 per cent of the Profit Before Interest and Tax (PBIT) as opposed to currently, where it is in excess of three times of paid-up capital.
"The target is to tighten interest expense deduction rules. It will increase taxable income for entities with loan from non-resident related parties," said Mr Njoroge.
A 10 per cent excise duty has been introduced on precious metal jewellery, cuff links and studs. Also, an excise duty of Sh5,000 per kilogram has been introduced for non-medicinal nicotine for oral application or non-combustion inhalation such as BAT's nicotine pouch.
Treasury has also reintroduced the 20 per cent excise duty on amounts staked or wagered in the betting industry. This tax had been scrapped through the Finance Act 2020 under a suspicious last minute change on the tax law.