President William Ruto has signed the contentious Finance Bill 2023 into law despite plans by the opposition for new protests against some tax-raising measures and a legal petition filed by Busia Senator Okiya Omtatah.
The Kenya Kwanza administration’s repressive taxes and levies can now be put into effect thanks to the bill’s Monday signing.
They include the housing tax and the standard-rated 16% Value Added Tax (VAT) on fuel products, both of which are now scheduled to go into effect on July 1, 2023, two days prior to the hearing of Mr. Omtatah’s petition.
The Ruto administration’s first revenue-raising strategy aims to raise up to Sh289 billion in additional tax revenue to support the Sh3.6 trillion budget for the fiscal year 2023–2024.
The bill, which increased the VAT on fuel products from 8% to 16% and added a 1.5% housing tax to employees’ basic salaries that are levied on both the employer and the employee, has been signed by Dr. Ruto.
The government targets to collect Sh83 billion per annum through the introduction of the housing tax.
The two main proposals, while reducing salaries by adding deductions to the payslip, will also have a significant impact on households across the nation by increasing the cost of production and transportation of goods.
With regard to fuel, the president’s approval means that beginning July 1, Kenyans will pay an additional Sh10.26 per litre of petroleum products (super, diesel, and kerosene).
The increase in pump prices would have been greater, but the Finance Bill 2023 provided some relief to consumers by lowering the Railway Development Levy from 2.5 percent to 1.5 percent and the Import Declaration Fee from 3.5 percent to 2.5 percent. The government expects to collect Sh50 billion per year from the standard VAT rating on petroleum products.
Furthermore, beginning July 1, businesses with a yearly turnover of Sh25 million will be graduated into the corporate tax category of 30%, as opposed to the current case where they enjoy a 1% turnover tax rate.
This is in response to changes made in the Finance Bill 2023, which changed the range of businesses eligible for turnover tax from Sh1.0 million to Sh50 million to a new range of Sh1 million to Sh25 million.
The change is intended to ensure that more businesses are netted into the high-yielding corporate tax rate.
Businesses that continue to be eligible for turnover tax will be required to comply with the new rate of 3% beginning July 1, as opposed to the current rate of 1%.
Another significant change that takes effect on July 1 is the introduction of new Pay As You Earn (Paye) tax bands of 32.5 percent for people earning between Sh500,000 and Sh800,000 per month, and a new 35% band for anyone earning more than Sh800,000.
Rental income taxpayers can breathe a sigh of relief, as the tax rate has been reduced from 10% to 7.5%.
Other winners include those who remit withholding tax and excise tax, excluding players in the gambling industry, with the period for remitting collections to the tax man being extended from the previously proposed 24 hours to five working days.
