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Transcript

Finance Bill 2025 · The Mwango Capital Podcast

• 0:00
  Good evening,
• 0:01
  ladies and gentlemen,
• 0:02
  and welcome to yet another Mwango Species.
• 0:06
  And today we will be comping through the Finance Bill 2025 and
• 0:11
  look deep into the
• 0:12
  SPEAKER_01: good,
• 0:13
  SPEAKER_01: the bad,
• 0:14
  SPEAKER_01: and the ugly aspects of this bill.
• 0:16
  SPEAKER_01: My name is Joe Waniki, and I will be your host this evening.
• 0:20
  SPEAKER_01: We have two speakers who are tax practitioners.
• 0:24
  SPEAKER_01: Ladies and gentlemen,
• 0:25
  SPEAKER_01: I will allow them to introduce themselves,
• 0:28
  SPEAKER_01: but before we get to that,
• 0:30
  SPEAKER_01: I will make a few remarks on this Finance Bill 2025,
• 0:35
  SPEAKER_01: which comes following the heated debate around Finance Act 2023,
• 0:41
  SPEAKER_01: which was challenged all the way to the Supreme Court,
• 0:44
  SPEAKER_01: and Finance Bill 2024,
• 0:46
  SPEAKER_01: which resulted into the Gen Z protests.
• 0:51
  SPEAKER_01: What happened?
• 0:51
  SPEAKER_01: Eventually,
• 0:53
  the president referred back the bill to the National Assembly
• 0:57
  with no proposed
• 0:58
  SPEAKER_01: changes at all.
• 1:00
  SPEAKER_01: So looking at Finance Bill 2025,
• 1:03
  this comes with the promises from the government that there
• 1:08
  won't be any new tax
• 1:09
  measures that are likely to increase the tax burden to Wanjiku
• 1:14
  and to the business
• 1:16
  SPEAKER_01: society.
• 1:17
  SPEAKER_01: However,
• 1:18
  SPEAKER_01: when we delve deep into the provision,
• 1:20
  SPEAKER_01: we always see the devil is always in the details.
• 1:24
  We will see some provisions that have a potential material
• 1:28
  financial impact on
• 1:29
  SPEAKER_01: businesses and the cost of doing business in Kenya.
• 1:34
  SPEAKER_01: With that,
• 1:35
  SPEAKER_01: I will allow our speakers to introduce themselves,
• 1:38
  SPEAKER_01: starting with Ann,
• 1:39
  SPEAKER_01: then we move to Ernst.
• 1:41
  SPEAKER_01: And as you introduce yourself,
• 1:43
  you can tell us whether this bill has met your expectations of
• 1:48
  the tax practitioner
• 1:49
  SPEAKER_01: based on what you are expecting.
• 1:51
  SPEAKER_01: Over to you, Anne.
• 1:52
  SPEAKER_00: Thank you so much, Joe.
• 1:54
  SPEAKER_00: And good evening, everyone.
• 1:56
  SPEAKER_00: My name is Anne Magondu.
• 1:57
  SPEAKER_00: I work with
• 1:57
  SPEAKER_00: Deloitte as a senior tax manager,
• 1:59
  it's always a pleasure to have conversation around these
• 2:02
  instruments that are being
• 2:03
  SPEAKER_00: released from time to shape our tax policy.
• 2:06
  SPEAKER_00: So to your question,
• 2:07
  SPEAKER_00: Ju,
• 2:07
  I would say just not to the expectation because though we do
• 2:12
  not have direct tax
• 2:13
  SPEAKER_00: provisions to say we've seen a form of indirect taxation,
• 2:18
  SPEAKER_00: where now we find key sectors that really support our economy,
• 2:22
  SPEAKER_00: that is manufacturing,
• 2:23
  SPEAKER_00: health,
• 2:23
  and agriculture being affected somehow because of the issue of
• 2:26
  moving some of these
• 2:28
  SPEAKER_00: supplies from beings related to exempt.
• 2:30
  SPEAKER_00: So you'll find that at the end of the day,
• 2:33
  SPEAKER_00: will have an impact on our earnings.
• 2:35
  SPEAKER_00: It still impacts us somehow negatively.
• 2:39
  SPEAKER_00: Those are my few remarks,
• 2:40
  SPEAKER_00: but I do also appreciate that on overall,
• 2:43
  we can see that the government is trying a bit to clean up the
• 2:47
  acts by ensuring
• 2:48
  SPEAKER_00: that provisions in the various tax look documents align.
• 2:52
  So you'll find a lot of deletions just to make sure that the
• 2:55
  tax procedures act,
• 2:57
  SPEAKER_00: the income tax act align accordingly.
• 2:59
  SPEAKER_00: similar to VAT and the TPA.
• 3:01
  SPEAKER_00: So a good thing that they have done to simplify the tax law for ease of
• 3:05
  SPEAKER_00: understanding and implementation of the taxpayers.
• 3:08
  SPEAKER_01: Ernst?
• 3:09
  SPEAKER_02: Thank you, Joe, for having me.
• 3:12
  SPEAKER_02: This bill has brought a lot of improvements in terms of alignment,
• 3:17
  SPEAKER_02: in terms of cleanups,
• 3:18
  SPEAKER_02: in terms of improvements such as the pensions.
• 3:22
  I think the improvements that were started last year have been
• 3:25
  made better by the
• 3:27
  SPEAKER_02: proposals that are found in the current bill.
• 3:30
  SPEAKER_02: I think that was a very good rule.
• 3:32
  SPEAKER_02: It now ensures that all pensions are tax exempt,
• 3:37
  SPEAKER_02: and that will be good for people who can build it.
• 3:41
  SPEAKER_02: Also, clarifying that tax invoice for VAT purposes.
• 3:46
  SPEAKER_02: If the tax invoice is contained with GAGS Procedures Act,
• 3:50
  I think that's a good alignment to ensure that there is clarity
• 3:54
  in terms of when
• 3:55
  SPEAKER_02: collecting documentation as a taxpayer and also in the force of business.
• 4:00
  SPEAKER_02: Introduction of advanced pricing agreement, I think that was good.
• 4:04
  SPEAKER_02: In terms of the bonds,
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  SPEAKER_02: a lot of tax incentives have been withdrawn,
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  SPEAKER_02: especially in the VAT Act,
• 4:11
  SPEAKER_02: in the Income Tax Act,
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  SPEAKER_02: for huge investments.
• 4:15
  I think that was not a good move for people who are in the
• 4:19
  middle of commencing or
• 4:22
  implementing new projects where the tax exemption certificate
• 4:25
  wouldn't have been
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  SPEAKER_02: received the 30th of June,
• 4:28
  SPEAKER_02: 2020,
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  SPEAKER_02: aside.
• 4:31
  I think that is not a good move,
• 4:32
  given that we need to promote employment in our country.
• 4:36
  Moving tax incentives is not good for promoting the employment
• 4:42
  opportunities for
• 4:43
  SPEAKER_02: Kenyans within Kenya.
• 4:45
  SPEAKER_02: Kazimaju is not the only way to promote employment as a country.
• 4:51
  SPEAKER_02: We also need to ensure that people stay.
• 4:54
  SPEAKER_02: Sometimes when we export people, we use some people permanently.
• 4:59
  Some will never come back and think that is one of the things
• 5:02
  that really needs to be re-looked.
• 5:05
  We get into the specifics of the changes in the bill and to get
• 5:10
  us started is earn.
• 5:12
  Earn will take us through the income tax changes starting with
• 5:17
  the PSUN related
• 5:19
  SPEAKER_01: changes or changes that affect payroll.
• 5:23
  Then we will pause and maybe take one or two questions
• 5:27
  affecting the people who are
• 5:29
  SPEAKER_01: in the employment sector.
• 5:30
  SPEAKER_01: And then we will proceed to income tax changes on the corporate.
• 5:34
  SPEAKER_01: So over to you, Anne.
• 5:36
  SPEAKER_00: Let me follow your order.
• 5:37
  SPEAKER_00: Though my thought process was organized otherwise, but it's okay.
• 5:41
  SPEAKER_00: So I'll move into changes that affect camp tax.
• 5:44
  And we see one positive proposal to increase the per diem from
• 5:49
  Kenya Shilling's
• 5:50
  SPEAKER_00: $2,000 per day,
• 5:51
  SPEAKER_00: $10,000.
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  SPEAKER_00: Of course,
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  SPEAKER_00: this was long overdue,
• 5:54
  SPEAKER_00: noting that the cost of living definitely has gone up over the years.
• 5:58
  SPEAKER_00: Yeah.
• 5:59
  $2,000 has been there since time immemorial and there has been
• 6:02
  a lot of lobby that
• 6:03
  SPEAKER_00: this needs to be increased.
• 6:05
  So having $10,000 as a per day and per day is because now
• 6:08
  employees do not need to
• 6:10
  carry so many invoices to support anything above $2,000 in
• 6:13
  respect of an assignment
• 6:15
  SPEAKER_00: that we're doing out of their normal station where they work from.
• 6:19
  So that's a good move and it's really something that is worth
• 6:23
  celebrating as
• 6:24
  SPEAKER_00: employers and also as employees.
• 6:26
  SPEAKER_00: And then moving to the next item that you find coming into the bill,
• 6:30
  SPEAKER_00: more of a cleanup and also alignment,
• 6:32
  is the issue that employers should grant reliefs and exemption
• 6:35
  on the payroll.
• 6:37
  SPEAKER_00: So what you find is that of late,
• 6:38
  SPEAKER_00: there has been rise in the tax refunds by the employees,
• 6:42
  SPEAKER_00: maybe because the payroll was not very well operated.
• 6:45
  SPEAKER_00: And when it is investigated,
• 6:46
  you find mainly such refunds arise from reliefs that were not
• 6:50
  claimed or deductions
• 6:51
  SPEAKER_00: that were not claimed through the payroll.
• 6:53
  So these are a good way to ensure the employees do not have to
• 6:58
  pay extra coin.
• 7:00
  Of course,
• 7:00
  as per the law,
• 7:01
  it should not be extra coin or lesser coin in that respect.
• 7:04
  SPEAKER_00: So it is a good move.
• 7:06
  SPEAKER_00: But of course,
• 7:07
  some work on the part of the employer to ensure that their
• 7:10
  payroll system is up to
• 7:12
  the task in terms of making sure all employment benefits are
• 7:16
  given to the employees
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  SPEAKER_00: at the point of doing the mandatory payroll.
• 7:19
  The other item also is more on alignment,
• 7:21
  the issue of extension of contribution to payroll.
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  SPEAKER_00: Social health insurance fund,
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  SPEAKER_00: what was in the Act,
• 7:27
  SPEAKER_00: that is the Income Tax Act,
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  SPEAKER_00: was still referring to the different national health insurance fund,
• 7:32
  SPEAKER_00: what we used to call NHIF.
• 7:34
  SPEAKER_00: Those just a clean-up exercise by the bill.
• 7:38
  SPEAKER_00: Then there's also the issue of payment of gratitude.
• 7:40
  SPEAKER_00: So previously,
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  SPEAKER_00: If you received gratuity from a public pension or public entity,
• 7:45
  SPEAKER_00: then that would be deemed to have been exempt.
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  So that was a bit discriminating on part of the private
• 7:51
  employees who get from private schemes.
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  SPEAKER_00: So now there's an alignment that any payment of gratuity would be exempt,
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  SPEAKER_00: as well as other allowances paid under a public pension scheme.
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  SPEAKER_00: So we are hoping that as the bill goes out for public participation,
• 8:06
  there'll be an amendment to make sure also that other
• 8:08
  allowances that are paid also
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  SPEAKER_00: cover us or cover us.
• 8:11
  SPEAKER_00: such as those that are paid from both public and private schemes.
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  The other item to note is just also to align the app and make
• 8:18
  sure that there is no
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  SPEAKER_00: constitutional ability.
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  It's the issue of benefits that accrue to the employee in form
• 8:23
  of fixed benefit and
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  SPEAKER_00: also interest that is earned by individuals.
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  SPEAKER_00: We do know very well that.
• 8:29
  interest earned by individuals is deemed qualifying and
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  therefore the voting tax
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  SPEAKER_00: deducted at source should be fined.
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  So what the bill proposes to do is to ensure them and to
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  clarify or to make it very
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  SPEAKER_00: clear that the individual tax rates,
• 8:43
  the graduated tax bracket are not applied as regards benefits
• 8:48
  that are in form of
• 8:48
  free benefit or qualifying interest because again the tax on
• 8:52
  free benefits is
• 8:53
  SPEAKER_00: payable by the employer on the issue of withdrawal of
• 8:57
  SPEAKER_00: FUDs from pensions.
• 8:59
  There was a provision within the law that would be allowed to
• 9:01
  withdraw your
• 9:02
  SPEAKER_00: pension,
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  SPEAKER_00: but then you'd have lesser exemptions.
• 9:05
  You could be allowed up to 600,000 if you've worked for 10
• 9:08
  years and the like.
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  SPEAKER_00: So this now seems to encourage people only withdraw pensions.
• 9:15
  SPEAKER_00: their pension at the age of retirement or when it is necessary,
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  SPEAKER_00: especially on the ground of ill health.
• 9:20
  It's a good move to ensure that people do not rush to withdraw
• 9:24
  their money.
• 9:24
  SPEAKER_00: Maybe when they change employers,
• 9:26
  SPEAKER_00: then when they get to the sunset years,
• 9:29
  SPEAKER_00: they have nothing to sustain their day-to-day needs.
• 9:32
  So it's also a good move up there of discipline on part of the
• 9:35
  employees in terms
• 9:36
  SPEAKER_00: of not allowing for those deductions.
• 9:39
  Then the next item is on issues of exemption that are being
• 9:44
  granted to foreign
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  SPEAKER_00: employees or employees who are working for regional offices.
• 9:49
  SPEAKER_00: Under the current law,
• 9:50
  such employees would get a reduction of a third of their salary
• 9:54
  as a deduction if
• 9:55
  SPEAKER_00: they're just in Kenya to perform a work for an office that is regional.
• 10:00
  This repeal is just to align and to make sure that we are
• 10:02
  following the same
• 10:04
  SPEAKER_00: principle around taxation of employees.
• 10:06
  SPEAKER_00: It is either based on residency or on the source.
• 10:09
  SPEAKER_00: Those are the key tax changes that are affecting employees.
• 10:13
  SPEAKER_01: Thank you,
• 10:14
  SPEAKER_01: Anne,
• 10:14
  for that elaborate summary on the income tax changes affecting
• 10:19
  people in the formal
• 10:20
  SPEAKER_01: job market sector.
• 10:22
  And one question on top of my mind is with regard to payments
• 10:27
  by an employer from
• 10:28
  SPEAKER_01: pension schemes,
• 10:29
  you can clarify to us whether this covers both private and
• 10:34
  public registered
• 10:36
  SPEAKER_01: pension schemes.
• 10:37
  SPEAKER_00: If I got you right, Joe, you're referring to the payment of gratitude?
• 10:41
  SPEAKER_00: Yes.
• 10:41
  SPEAKER_00: So what we have this as the law is only covers public pension schemes.
• 10:47
  So the proposal is to have both public and private pension
• 10:50
  schemes included in the exemption.
• 10:52
  What is missing in terms of alignment is now other allowances
• 10:55
  under the schemes.
• 10:56
  SPEAKER_00: So what is exempt is only for public pension scheme.
• 10:59
  And we look to having maybe that aligned before the bill is
• 11:03
  enacted to an act of verlainment.
• 11:05
  SPEAKER_01: Then on the pension schemes,
• 11:07
  you mentioned that currently the Income Tax Act allows a member
• 11:12
  of a pension scheme
• 11:13
  SPEAKER_01: to withdraw tax-free up to 600,000,
• 11:17
  SPEAKER_01: 10 shillings from their registered pension scheme.
• 11:21
  SPEAKER_01: That is before their retirement age.
• 11:24
  SPEAKER_01: So if I got you right,
• 11:26
  SPEAKER_01: you mean that in this bill,
• 11:29
  that proposal to exempt the first 600,000 lump sum withdrawal
• 11:34
  will now be deleted
• 11:35
  SPEAKER_01: in the Income Tax Act,
• 11:37
  SPEAKER_01: meaning that if today I decide to retire prior to my retirement age,
• 11:43
  SPEAKER_01: I'll be taxed on my entire withdrawals from the scheme.
• 11:47
  That is what I would also read in this bill to mean that if you
• 11:52
  go ahead to
• 11:52
  SPEAKER_00: withdraw before your retirement age,
• 11:55
  SPEAKER_00: definitely,
• 11:55
  then you'll suffer tax without any amount being exempted when
• 12:00
  you're being paid by
• 12:01
  SPEAKER_00: the respective pension schemes.
• 12:03
  SPEAKER_01: So if I get you right,
• 12:05
  SPEAKER_01: Anne,
• 12:05
  SPEAKER_01: is that the big discussion around exemptions on activities and pensions.
• 12:11
  SPEAKER_01: How many?
• 12:12
  SPEAKER_01: Rightly,
• 12:13
  only people who have obtained a retirement pay tend to benefit
• 12:17
  from this provision,
• 12:18
  SPEAKER_01: right?
• 12:18
  SPEAKER_01: And it's on all the draws now you get full exemption.
• 12:22
  SPEAKER_01: Thank you, Anne.
• 12:23
  For that,
• 12:23
  I think we can pack the changes on income tax for employees at
• 12:29
  that.
• 12:31
  SPEAKER_01: Anne,
• 12:31
  SPEAKER_01: at this point,
• 12:31
  I would want you to break down the income tax changes affecting
• 12:36
  corporations or the
• 12:38
  SPEAKER_01: business world.
• 12:39
  The introduction of 100% claim of capital expense in relation
• 12:44
  to small implements
• 12:46
  SPEAKER_00: and utensils and similar items,
• 12:48
  SPEAKER_00: what we call the munition allowance.
• 12:51
  SPEAKER_00: So this item was somehow not completed.
• 12:56
  SPEAKER_00: The Finance Act 2023,
• 12:58
  there was an intention to have it back because we go back to
• 13:00
  the bill that was
• 13:01
  SPEAKER_00: discussed.
• 13:02
  SPEAKER_00: There was that provision.
• 13:04
  Then again,
• 13:05
  during the Finance Bill 2024,
• 13:07
  it was also there to allow for 100%.
• 13:09
  SPEAKER_00: But since the Finance Act 2024 never went through,
• 13:13
  SPEAKER_00: the only other chance that we could have it is at this point.
• 13:15
  SPEAKER_00: So this is a good move.
• 13:17
  If you recall,
• 13:18
  the rate at which taxpayers would claim this deduction was at
• 13:21
  33.3%.
• 13:23
  SPEAKER_00: So that is one of the proposed changes.
• 13:25
  SPEAKER_00: The other issue is in terms of donations that are allowable for tax.
• 13:31
  So we've seen an expansion of these in terms of including
• 13:34
  donations that are made
• 13:36
  SPEAKER_00: towards construction of public sporting facilities.
• 13:39
  SPEAKER_00: Previously,
• 13:39
  SPEAKER_00: for such sponsorship or donation,
• 13:42
  sports are ought to have received an approval by the Cabinet
• 13:45
  Secretary in charge of
• 13:46
  SPEAKER_00: sports.
• 13:47
  SPEAKER_00: But now,
• 13:47
  SPEAKER_00: going forward,
• 13:48
  if one is able to show evidence that the donation was towards a
• 13:52
  supporting
• 13:53
  SPEAKER_00: construction of a
• 13:54
  sport facility,
• 13:55
  then they'll get that as deduction for income tax purposes.
• 13:59
  SPEAKER_00: The other big one,
• 14:00
  SPEAKER_00: and which is,
• 14:02
  SPEAKER_00: of course,
• 14:03
  bringing a lot of problems around is the issue of tax credit
• 14:07
  for carrying forward
• 14:08
  SPEAKER_00: of tax losses.
• 14:09
  For some time,
• 14:11
  we've had this being that you can carry forward your loss
• 14:14
  indefinitely.
• 14:14
  SPEAKER_00: You remember the attempt to introduce minimum tax.
• 14:18
  The government then decided that losses can be carried forward
• 14:21
  indefinitely.
• 14:22
  SPEAKER_00: But we do all know that minimum tax was dictated and constitutional.
• 14:25
  And therefore,
• 14:26
  the government is trying to reverse the position back to where
• 14:28
  we were.
• 14:29
  SPEAKER_00: Now you can only carry forward losses for a period of five years.
• 14:32
  SPEAKER_00: Actually,
• 14:33
  it's the most strict year because what we had before was that
• 14:36
  you could carry
• 14:37
  SPEAKER_00: forward losses for 10 years.
• 14:39
  SPEAKER_00: Still, there was an avenue to apply for extension.
• 14:42
  Also that we have only has five years without provision for
• 14:46
  extension by the commissioner.
• 14:48
  I would say this is not very competitive and also might impact
• 14:51
  key sectors of this
• 14:53
  SPEAKER_00: economy,
• 14:53
  SPEAKER_00: especially taxpayers who are capital intensive.
• 14:56
  They have to really do a lot of cash outlay at the beginning of
• 15:00
  the operations and
• 15:00
  SPEAKER_00: before they break even.
• 15:02
  SPEAKER_00: might take more than five years.
• 15:04
  So they might lose their losses though they are looking towards
• 15:07
  generating profit
• 15:09
  SPEAKER_00: when they break even.
• 15:10
  So we find this is not very competitive because even looking
• 15:14
  across in the East,
• 15:15
  SPEAKER_00: you'll find this is very punitive.
• 15:17
  SPEAKER_00: Because if you can check like in Rwanda,
• 15:19
  SPEAKER_00: The time limit is five years,
• 15:21
  SPEAKER_00: but you can be allowed to apply for extension to their commissioner.
• 15:26
  SPEAKER_00: Moving to Uganda, then they have seven years to carry forward losses.
• 15:31
  SPEAKER_00: And if seven years lapses,
• 15:32
  SPEAKER_00: you've not exhausted all the losses,
• 15:34
  SPEAKER_00: then you only lose 50% of what was not.
• 15:37
  SPEAKER_00: So that is a better move.
• 15:38
  So you'll only not lose as a big chunk as a Kenyan who invest
• 15:43
  here and for
• 15:44
  SPEAKER_00: Tanzania,
• 15:44
  SPEAKER_00: which could be more preferable.
• 15:47
  SPEAKER_00: If you're in tax losses for two years and consecutively,
• 15:50
  then you are exposed to pay minimum tax in Tanzania at 0.5% of
• 15:53
  your sales.
• 15:56
  SPEAKER_00: Then if you proceed to still have losses,
• 15:58
  SPEAKER_00: in the fifth year,
• 15:58
  SPEAKER_00: if you still have losses,
• 16:00
  then they'll allow you to only claim losses to the extent of
• 16:04
  60% of your taxable
• 16:05
  SPEAKER_00: income,
• 16:06
  SPEAKER_00: meaning that you pay taxes on the 40% of the balance of taxable income,
• 16:10
  SPEAKER_00: but then you're only allowed to claim taxes.
• 16:11
  SPEAKER_00: So they give you options.
• 16:13
  SPEAKER_00: And I think that facing is in line with the business cycles,
• 16:17
  SPEAKER_00: because as we all know,
• 16:18
  SPEAKER_00: when you begin a business,
• 16:20
  you might have challenges of generating enough revenue to cover
• 16:23
  your pay or other
• 16:24
  SPEAKER_00: costs.
• 16:25
  SPEAKER_00: the establishment cost and the outlay.
• 16:27
  We hope that this will be revised and be more aligned to make
• 16:32
  sure that we do not
• 16:33
  SPEAKER_00: lose on foreign direct investment.
• 16:34
  Another small change in the income tax application for change
• 16:38
  of accounting year ahead.
• 16:40
  SPEAKER_00: Often you may find that the reporting year ahead of a company changes.
• 16:44
  SPEAKER_00: Maybe from a group perspective,
• 16:45
  they decide that they're going to change a reporting year ahead
• 16:49
  from maybe March to
• 16:49
  SPEAKER_00: June.
• 16:50
  SPEAKER_00: So again, for tax, you're allowed to
• 16:52
  SPEAKER_00: request for alignment with the counting period.
• 16:55
  It is in the law that the commission should be able to respond
• 16:59
  within six months,
• 17:00
  SPEAKER_00: but there was no like capping a limit.
• 17:02
  But now the proposal is that if the commission does not get
• 17:05
  back within six months,
• 17:06
  SPEAKER_00: then the application will be deemed to have been allowed.
• 17:09
  The other item of interest to note is in terms of issuance of
• 17:13
  tax exemption certificate.
• 17:16
  for public benefit organizations that are out here to argument
• 17:20
  the supply of public services.
• 17:23
  SPEAKER_00: As the law is today,
• 17:25
  the Commission is supposed to issue the certificate within 60
• 17:28
  days after all
• 17:29
  SPEAKER_00: required documents and policy qualifications are met.
• 17:33
  SPEAKER_00: This should be extended to 90 days.
• 17:35
  Mid last year,
• 17:36
  the Cabinet Secretary did release new rules to govern insurance
• 17:40
  of certificates.
• 17:42
  SPEAKER_00: Therefore,
• 17:42
  I think given that the new rules requires an intensive study by
• 17:45
  the KRA and also
• 17:47
  production of a lot of documentation to support the object and
• 17:52
  the work that the
• 17:53
  SPEAKER_00: said public,
• 17:55
  SPEAKER_00: the only fit organization to pursue,
• 17:57
  SPEAKER_00: maybe then to just give the commission a good time to make decisions.
• 18:00
  SPEAKER_00: a justifiable decision on the application.
• 18:04
  Moving on,
• 18:04
  the other issue is around penalty for underpayment of
• 18:07
  installment taxes.
• 18:08
  SPEAKER_00: This one has stuck for so long within the Income Tax Act,
• 18:11
  SPEAKER_00: and it was not aligned to the Tax Procedures Act.
• 18:14
  SPEAKER_00: The rate in the Income Tax Act is at 20%,
• 18:16
  SPEAKER_00: and the bill proposes to delete this,
• 18:19
  SPEAKER_00: which is so much welcome.
• 18:21
  SPEAKER_00: So for such underpayment of installment taxes,
• 18:23
  SPEAKER_00: then we expect that the lower rate of 5% would be applied going forward.
• 18:28
  Then the other issue that has come through for corporates is in
• 18:33
  terms of payment of
• 18:35
  SPEAKER_00: tax on what you call and tax proceeds.
• 18:38
  SPEAKER_00: Such proceeds are distributed as dividends.
• 18:42
  SPEAKER_00: For those who might remember that,
• 18:44
  SPEAKER_00: A while ago,
• 18:45
  SPEAKER_00: we had compensating tax,
• 18:47
  but provisions around compensating tax were deleted and they
• 18:50
  introduced payment of
• 18:51
  SPEAKER_00: tax on profits that were not taxed.
• 18:54
  SPEAKER_00: But then these have been distributed to dividend.
• 18:58
  SPEAKER_00: Mainly,
• 18:59
  SPEAKER_00: An entity would have untaxed profits where the accounting profit,
• 19:03
  SPEAKER_00: that is profit before tax,
• 19:05
  SPEAKER_00: is in positive.
• 19:06
  SPEAKER_00: But when the tax competition is done,
• 19:09
  SPEAKER_00: we add up into a tax loss position,
• 19:12
  mainly because of maybe incentives or high expenses at the
• 19:15
  beginning of the
• 19:17
  SPEAKER_00: operations.
• 19:17
  But the directors will choose to distribute dividends based on
• 19:21
  the accounting profit.
• 19:23
  In such a scenario then,
• 19:24
  you find such an entity,
• 19:25
  if the dividends are distributed,
• 19:27
  We will be distributing dividends from income that has not been
• 19:32
  taxed because at
• 19:33
  SPEAKER_00: the end of the day,
• 19:33
  SPEAKER_00: they are under tax laws.
• 19:35
  SPEAKER_00: Then we have another proposal that is raising eyebrows,
• 19:40
  SPEAKER_00: what may be the right move,
• 19:41
  at the repeal of the 100% investment deductions for investments
• 19:46
  that are made
• 19:47
  SPEAKER_00: outside Nairobi and Mombasa County,
• 19:49
  SPEAKER_00: and especially in addition to manufacturing and hotel buildings.
• 19:53
  SPEAKER_00: So there was a preferential rate of 100%,
• 19:55
  SPEAKER_00: but this now is supposed to be deleted,
• 19:58
  meaning that all investors' respective ways of investing as a
• 20:02
  manufacturer or in
• 20:03
  SPEAKER_00: the hotel industry,
• 20:06
  as well as investment by entities in the socioeconomic zone
• 20:09
  will be aligned with
• 20:10
  SPEAKER_00: the standard rates of 50% in the first year,
• 20:14
  SPEAKER_00: then 25% in the subsequent years.
• 20:15
  So this might roll back the gains that we'd seen some investors
• 20:20
  going to discuss with counties.
• 20:22
  where they would establish plans and creating jobs in the
• 20:26
  counties that may affect
• 20:27
  SPEAKER_00: the growth of the counties,
• 20:29
  may encourage also rural urban migration and also economic
• 20:33
  growth so that the
• 20:34
  SPEAKER_00: satellite counties might not be at par because of this repeal.
• 20:39
  SPEAKER_00: So moving quickly to the next item, I look at preferential tax rates.
• 20:44
  So we had a preferential income tax rate for entities that were
• 20:48
  constructing at
• 20:49
  SPEAKER_00: least 100 units per year.
• 20:50
  SPEAKER_00: Those are residential.
• 20:52
  and also for those businesses that are engaged in assembly of
• 20:56
  motor vehicles,
• 20:58
  SPEAKER_00: both by joining a preferential rate of 15%.
• 21:01
  SPEAKER_00: This is to be repealed if the bill passes as is,
• 21:04
  SPEAKER_00: meaning that then these will also pay taxes of 30%.
• 21:08
  SPEAKER_00: But as we speak of repeal,
• 21:10
  SPEAKER_00: then we find also the ease introduction of preferential tax rates,
• 21:14
  especially for entities that are certified under the Nairobi
• 21:18
  International
• 21:18
  SPEAKER_00: Financial Center,
• 21:20
  SPEAKER_00: So for such entities,
• 21:24
  SPEAKER_00: then they'll enjoy reduced tax rate of 15% in the past 10 years,
• 21:29
  SPEAKER_00: and then 20% in the subsequent 10 years.
• 21:33
  SPEAKER_00: So they'll only pay the standard rate of 30% after 20 years.
• 21:37
  SPEAKER_00: The conditions to this,
• 21:38
  the company must at least invest 3 billion shillings in Kenya
• 21:41
  in the first three
• 21:42
  SPEAKER_00: years of the operation.
• 21:44
  Then it is required that such a company also employs their top
• 21:47
  management.
• 21:48
  SPEAKER_00: 75% management should be citizen of Kenya.
• 21:52
  SPEAKER_00: Again,
• 21:52
  SPEAKER_00: now also startups that are registered still under NIFCA also will enjoy a
• 21:58
  referential rate of 15% for the first three years and then 20%
• 22:02
  in the next four
• 22:02
  SPEAKER_00: years.
• 22:03
  SPEAKER_00: So those are new entrants into the referential bracket.
• 22:07
  We can pause at part and look at what we've already shared and
• 22:11
  I will draw a few
• 22:12
  SPEAKER_01: thought-provoking questions to your end.
• 22:16
  SPEAKER_01: And the first one is on tax losses.
• 22:19
  SPEAKER_01: If I got you right,
• 22:20
  currently the law allows a business to carry forward tax losses
• 22:25
  indefinitely,
• 22:27
  SPEAKER_01: right?
• 22:28
  SPEAKER_01: Even if a business will be in losses for 50,
• 22:33
  SPEAKER_01: 60,
• 22:37
  SPEAKER_01: 70,
• 22:37
  100 years,
• 22:34
  SPEAKER_01: they will still be entitled to carry forward the losses.
• 22:37
  SPEAKER_01: Now with the new proposal, this limits it to only five years.
• 22:43
  You can let us know whether there's room to apply for extension
• 22:48
  and just shed a
• 22:49
  light on the best practice across our neighbors on treatment of
• 22:54
  tax losses.
• 22:55
  SPEAKER_00: We do not have room for extension as per the bill.
• 23:00
  So we do expect that this will be lobbied for and included
• 23:04
  before the bill becomes
• 23:06
  SPEAKER_00: an act of parliament.
• 23:08
  SPEAKER_00: I did say that this will have adverse effect,
• 23:11
  especially for entities that are capital intensive or they
• 23:15
  require assistance.
• 23:16
  SPEAKER_00: to incur in a lot of expenses before they can break even.
• 23:20
  So this might not be a very good move and it will also reduce
• 23:24
  our competitiveness
• 23:25
  SPEAKER_00: as a country because looking at Tanzania,
• 23:28
  SPEAKER_00: which also is becoming a hub for investors,
• 23:32
  SPEAKER_00: they have a better regime in terms of how you utilize this tax loss.
• 23:37
  SPEAKER_00: In Tanzania,
• 23:38
  SPEAKER_00: what I know is that you're allowed to carry forward your tax loss,
• 23:41
  SPEAKER_00: but with some condition.
• 23:43
  SPEAKER_00: If you run into tax loss for two consecutive years,
• 23:46
  SPEAKER_00: then you'll be required to pay minimum tax at 0.5% of your sales.
• 23:52
  SPEAKER_00: Then you still continue carrying new.
• 23:54
  SPEAKER_00: losses until the fifth year.
• 23:56
  SPEAKER_00: So in your fifth year,
• 23:57
  SPEAKER_00: assume you now have some taxable income,
• 24:01
  then you'll only be allowed to claim 60% of the profit against
• 24:07
  the loss that you've
• 24:07
  SPEAKER_00: carried forward,
• 24:08
  SPEAKER_00: meaning that 40% of your taxable income will be subject to tax.
• 24:14
  SPEAKER_00: So you'll pay some revenue to the government of
• 24:17
  SPEAKER_00: Tanzania, Uganda counterpart for them is seven years.
• 24:21
  SPEAKER_00: So if you have a tax loss, you can cut it forward for seven years.
• 24:24
  If you pass the seven year limit,
• 24:26
  you would be allowed to only explain 50% of the balance.
• 24:30
  SPEAKER_00: So you do not lose everything.
• 24:32
  SPEAKER_00: And Rwanda...
• 24:34
  SPEAKER_00: They do have similar five years,
• 24:36
  but then the commissioner can allow you to continue enjoying
• 24:40
  the deduction if
• 24:41
  you're able to provide evidence of reasons what made you not to
• 24:45
  have exhausted the
• 24:46
  SPEAKER_00: tax loss by the fifth year.
• 24:48
  SPEAKER_00: As you said, Joe, this is a very contentious issue.
• 24:49
  It's going to have a huge implication for our country because
• 24:54
  this is time we'd see
• 24:55
  SPEAKER_00: more investment coming through with such a reversal of a key provision.
• 25:00
  SPEAKER_00: Then you find the key stakeholders or key investors may want to look
• 25:04
  SPEAKER_00: into other countries for investment.
• 25:06
  SPEAKER_00: I hope that is comprehensive.
• 25:09
  SPEAKER_01: Yes, that was spoken and I believe it was equally clear to our audience.
• 25:15
  SPEAKER_01: My next question or rather clarification is on installment taxes.
• 25:21
  SPEAKER_01: Currently,
• 25:22
  SPEAKER_01: business is required to pay installments,
• 25:24
  SPEAKER_01: four installments across the year on the 4th,
• 25:28
  SPEAKER_01: 6th,
• 25:28
  SPEAKER_01: the 9th,
• 25:29
  SPEAKER_01: and the 12th month of the following year.
• 25:32
  SPEAKER_01: Right.
• 25:32
  SPEAKER_01: Now, when you look at it.
• 25:34
  SPEAKER_01: From the start of the year,
• 25:36
  SPEAKER_01: and like we experienced this year in Nairobi or rather in Kenya,
• 25:40
  SPEAKER_01: business activity was rather low in the first quarter of the year.
• 25:45
  SPEAKER_01: So looking at the current provisions of the law,
• 25:48
  am I allowed not pay the first installment tax and maybe look
• 25:53
  at the actual
• 25:53
  realizations in terms of business performance and then evaluate
• 25:58
  the performance in
• 25:59
  SPEAKER_01: the second,
• 26:00
  SPEAKER_01: third,
• 26:00
  SPEAKER_01: and fourth quarter if
• 26:02
  SPEAKER_01: I'm making a realizable profit I pay installments then.
• 26:06
  SPEAKER_01: When you talk about the penalty that this bill is doing away with,
• 26:11
  is it a penalty based on every installment or is it a penalty
• 26:16
  based on the total
• 26:18
  SPEAKER_01: installments paid at the end of the year compared to the pay?
• 26:23
  SPEAKER_01: And you can start at that.
• 26:24
  I would say it's good that we are doing our way with a penalty
• 26:27
  of 20% because it
• 26:28
  SPEAKER_00: was not aligned with similar penalties under the Tax Procedures Act.
• 26:32
  You well know under the Tax Procedures Act,
• 26:34
  penalty for late payment is 5%.
• 26:37
  But for a summer tax,
• 26:39
  it has been 20 for a long time and is housed within the Income
• 26:42
  Tax Act.
• 26:44
  SPEAKER_00: So to your question around whether a company is allowed to pay taxes,
• 26:47
  SPEAKER_00: rather you can misstep an insommate tax,
• 26:50
  SPEAKER_00: and maybe I'll read your question in the subsequent period,
• 26:53
  SPEAKER_00: the law is very clear that you can pay your insommate tax on two bases,
• 26:57
  SPEAKER_00: the current year basis,
• 26:58
  SPEAKER_00: where you'll be required to
• 27:00
  SPEAKER_00: provide all to-do estimates of your projected performance in the year.
• 27:05
  SPEAKER_00: The other basis is prior tax liability.
• 27:08
  SPEAKER_00: There's an assumed growth of 10%.
• 27:10
  SPEAKER_00: So whichever basis gives you a low amount, that is what you should pay.
• 27:15
  SPEAKER_00: So yes,
• 27:16
  you would resort maybe in one instance to having not pay
• 27:20
  instrument tax in case
• 27:22
  SPEAKER_00: your projection resorts into a loss.
• 27:24
  SPEAKER_00: The only challenge we have,
• 27:26
  SPEAKER_00: rather,
• 27:26
  SPEAKER_00: if you look at the law,
• 27:27
  SPEAKER_00: the way it is designed,
• 27:29
  SPEAKER_00: is that the commissioner assumes he'll grow by 10%.
• 27:33
  SPEAKER_00: But where you are, you say, I cannot grow by 10%.
• 27:35
  Actually,
• 27:36
  I'll have less profit by the end of the year than the year we
• 27:40
  are looking at.
• 27:41
  SPEAKER_00: So for that basis, then you lose the current year basis.
• 27:45
  SPEAKER_00: But if in the end result,
• 27:47
  SPEAKER_00: especially when you're doing your very final tax computation,
• 27:51
  it then results that the tax payable is actually more than 10%
• 27:56
  of your previous
• 27:58
  SPEAKER_00: year,
• 27:58
  SPEAKER_00: then you'll be deemed 12%.
• 28:00
  defaulted or rather not complied with the law because you're
• 28:04
  only expected to maybe
• 28:06
  do your current year basis if you're very sure your growth will
• 28:09
  be less than 10%.
• 28:10
  SPEAKER_00: So let me give you an example.
• 28:12
  SPEAKER_00: Assuming this year you're paying 10 million tax liability.
• 28:16
  SPEAKER_00: So for the year 2025,
• 28:20
  SPEAKER_00: under the 10% assumed growth,
• 28:22
  SPEAKER_00: then you should pay out of 11 million as you estimate taxes.
• 28:25
  SPEAKER_00: But you go ahead and say this year,
• 28:27
  SPEAKER_00: likely that by the end of the year,
• 28:29
  SPEAKER_00: my total taxable income will be 7 million.
• 28:32
  So over the period,
• 28:34
  as you continue estimating,
• 28:35
  you end up with a 7 million.
• 28:38
  So if you end up at a 7 million,
• 28:39
  then there should be no penalties because you're below the 10%.
• 28:43
  SPEAKER_00: But assume now you add up with a payment of $12 million.
• 28:48
  SPEAKER_00: So this is now even above the 10% assumed growth.
• 28:51
  SPEAKER_00: So you'll be seen to have added paid with $1 million.
• 28:54
  SPEAKER_00: It's a bit of complex, but that is what the law provides.
• 28:56
  SPEAKER_00: And for some of the taxpayers and from...
• 29:01
  SPEAKER_00: A few cases that I've seen,
• 29:03
  ITAX has somehow been configured to detect instances of
• 29:06
  underpayment of estimate
• 29:08
  SPEAKER_00: taxes.
• 29:09
  SPEAKER_00: And then you find in your ledger there's a penalty imposed.
• 29:12
  So it's always good to check your ledger and maybe just go back
• 29:15
  to your calculation
• 29:17
  and confirm whether it's in the ITAX is correct or there could
• 29:20
  be an error.
• 29:21
  So her call is that we all check our ITAX pages to confirm that
• 29:25
  there are no hidden
• 29:26
  SPEAKER_00: penalties that are based on underpayment of estimate taxes.
• 29:30
  SPEAKER_01: Thank you, Anne.
• 29:31
  I propose that we pack any income tax changes that you may not
• 29:37
  have covered at this point.
• 29:39
  SPEAKER_01: Then we move on to Ernst.
• 29:41
  And Ernst will bring us the tax procedures changes that have
• 29:46
  been proposed in this bill.
• 29:48
  We will look at any other income tax junctures towards the end
• 29:53
  so that we do not
• 29:55
  SPEAKER_01: make a conversation too monotonous for our listeners.
• 29:58
  SPEAKER_01: Over to you, Ernst.
• 29:59
  You can introduce to us some of the Tax Procedures Act changes
• 30:03
  that have been
• 30:04
  SPEAKER_01: proposed in the bill.
• 30:05
  SPEAKER_02: Tax Procedures Act has not so many amendments this time around.
• 30:10
  SPEAKER_02: The first one is on items.
• 30:13
  So the exemptions provisions under the items have been
• 30:18
  redrafted just to make it clear.
• 30:22
  So the original drafting of the exemptions or the exclusions of
• 30:26
  items under items
• 30:27
  SPEAKER_02: is not so clear,
• 30:29
  SPEAKER_02: but it has now been rewarded just to make it easier to understand.
• 30:34
  SPEAKER_02: The most significant that I nurtured
• 30:37
  was presently it excludes payment of withholding tax and
• 30:41
  similar payments.
• 30:43
  SPEAKER_02: That has been amended to say payments where withholding tax is final.
• 30:49
  SPEAKER_02: So that is very clear.
• 30:51
  SPEAKER_02: So if you're dealing with a dividend,
• 30:52
  SPEAKER_02: for example,
• 30:53
  SPEAKER_02: presently it just says payments of withholding tax.
• 30:56
  SPEAKER_02: So it is a tax on the dividends, not the dividend itself.
• 31:01
  SPEAKER_02: So that brings clarity into the application of that provision.
• 31:05
  SPEAKER_02: Now,
• 31:05
  SPEAKER_02: when the commissioner gives you an assessment,
• 31:08
  SPEAKER_02: we will be required to give you the reasons for that assessment.
• 31:12
  SPEAKER_02: This unfortunately only applies to amended assessments.
• 31:17
  SPEAKER_02: That is under Section 31 of the Tax Procedures Act.
• 31:21
  SPEAKER_02: However,
• 31:22
  SPEAKER_02: a similar provision has not been made under assessments under Section 29,
• 31:26
  SPEAKER_02: which we call default assessments.
• 31:29
  So we hope in the public participation process that this
• 31:33
  amendment will be inserted
• 31:34
  just to harmonize the default assessment provisions and the
• 31:38
  amended assessments
• 31:39
  SPEAKER_02: provisions.
• 31:41
  SPEAKER_02: So at least now when the commissioner gives you the reasons,
• 31:45
  SPEAKER_02: then you're able to better understand and respond to the assessment.
• 31:50
  However,
• 31:51
  another thing that I found that was missing also is any
• 31:54
  workings.
• 31:55
  SPEAKER_02: So sometimes you find the assessment is given to you in a PDF format,
• 32:00
  but the workings they are in are in tables that you cannot
• 32:05
  understand where that
• 32:06
  SPEAKER_02: information came from.
• 32:08
  So it will be important that the commissioner also be required
• 32:12
  to provide any
• 32:13
  SPEAKER_02: workings that he has come up with.
• 32:15
  to support his assessment so that you,
• 32:18
  the taxpayer,
• 32:19
  then can be able to understand.
• 32:21
  SPEAKER_02: And if you're objecting to that assessment,
• 32:24
  SPEAKER_02: then you have a clear basis for making that objection.
• 32:27
  You just find sometimes they omit to send you the Excel or it
• 32:30
  takes even a whole week.
• 32:32
  SPEAKER_02: Yet, once you receive the assessment, the clock starts ticking.
• 32:36
  SPEAKER_02: You have 30 working days within which to do an objection.
• 32:40
  SPEAKER_02: But if he has not given you the workings, that can hit into your 30 days.
• 32:45
  A new provision has been proposed to say that you will not be
• 32:48
  required to pay
• 32:50
  withholding tax if at the point that it's noted that the
• 32:54
  withholding tax was not
• 32:55
  SPEAKER_02: paid,
• 32:56
  the beneficiary of that withholding tax has already accounted
• 32:59
  for the tax.
• 33:00
  So this is a good move in that it will take away the need for
• 33:05
  you paying the tax
• 33:06
  SPEAKER_02: again,
• 33:07
  SPEAKER_02: which in reality leads to double taxation.
• 33:11
  SPEAKER_02: You paying that tax,
• 33:12
  SPEAKER_02: the recipient pays the same tax,
• 33:15
  SPEAKER_02: and then the commissioner receives those funds twice.
• 33:19
  And then usually what happens is withholding taxes pay based on
• 33:23
  a certain year.
• 33:24
  SPEAKER_02: If you file the returns on that particular year,
• 33:28
  SPEAKER_02: then this new withholding tax that someone has been made to pay,
• 33:33
  you cannot utilize it in the next year directly until you apply
• 33:37
  for a refund or an
• 33:38
  SPEAKER_02: offset.
• 33:39
  SPEAKER_02: So I think this will enable us to ensure that no double payments,
• 33:45
  SPEAKER_02: no going into refund and offset processes,
• 33:48
  SPEAKER_02: which can be laborious.
• 33:50
  SPEAKER_02: Sometimes people,
• 33:50
  SPEAKER_02: if the amounts are not so big,
• 33:52
  SPEAKER_02: then they opt to just leave it alone,
• 33:54
  SPEAKER_02: which is a loss.
• 33:55
  We end up writing up amounts that are deemed not beneficial to
• 34:00
  apply for a refund.
• 34:02
  SPEAKER_02: Yet in the long run, such amounts add up to become a lot of money.
• 34:07
  SPEAKER_02: So I think that was a welcome move.
• 34:09
  SPEAKER_02: The tax procedures action will include exemption of staff duty where the
• 34:13
  commissioner registers any securities or sells any properties
• 34:19
  to collect any tax
• 34:21
  SPEAKER_02: outstanding.
• 34:21
  SPEAKER_02: This is being moved from the Income Tax Act.
• 34:25
  SPEAKER_02: into the Tax Procedures Act.
• 34:27
  So you find that exemptions for stamp duty were not in the VAT
• 34:31
  Act or the Excise Duty Act.
• 34:35
  SPEAKER_02: So now that you have it seated in the Tax Procedures Act,
• 34:38
  that means it will apply not only just to the Income Tax Act as
• 34:42
  it is today,
• 34:43
  SPEAKER_02: it will also apply to the Excise Duty Act and the VAT Act.
• 34:47
  Now the commissioner will have power to also do agency notices
• 34:52
  against any
• 34:53
  SPEAKER_02: non-resident who is required to pay taxes.
• 34:56
  SPEAKER_02: So this will ordinarily apply to things like digital services tax,
• 35:01
  SPEAKER_02: taxes on Bitcoins,
• 35:03
  SPEAKER_02: where the platform is outside Kenya,
• 35:06
  any access duty for non-residents supplying accessible services
• 35:11
  into Kenya.
• 35:12
  So an agency notice can be placed against or on an unresigant
• 35:17
  person so that they
• 35:19
  SPEAKER_02: can collect any taxes outstanding.
• 35:22
  I was going through the VAT Act and I realized there is not a
• 35:26
  terminology or
• 35:27
  SPEAKER_02: definition of the term unresigant in the VAT Act.
• 35:31
  SPEAKER_02: So I think applying this in the VAT Act would be problematic.
• 35:36
  SPEAKER_02: In the Excise Duty Act, they've introduced the term non-resident.
• 35:39
  In the Income Tax Act,
• 35:41
  the term non-resident has always been there since forever.
• 35:45
  So I think it's also important that they harmonize this
• 35:49
  terminology in the Excise
• 35:50
  SPEAKER_02: Duty Act,
• 35:51
  SPEAKER_02: in the VAT Act,
• 35:53
  SPEAKER_02: so that we know who a non-resident is for purposes of VAT.
• 35:58
  So the bill also proposes to include appointments of the
• 36:02
  digital service tax agent.
• 36:05
  SPEAKER_02: In terms of refunds,
• 36:06
  they want to extend the time period for applying for refunds
• 36:09
  for the commissioner
• 36:10
  SPEAKER_02: to look at refunds from 90 days to 120 days.
• 36:14
  So this will give them time to review sometimes a lot of
• 36:18
  documents that may be
• 36:19
  SPEAKER_02: supplied to the commissioner during a refund application.
• 36:23
  I think that is a good move because sometimes people end up
• 36:28
  moving into litigations
• 36:29
  SPEAKER_02: very quickly.
• 36:31
  SPEAKER_02: because the 90 days have elapsed.
• 36:33
  But I hope now that we are moving to all invoices being raised
• 36:38
  on e-teams,
• 36:40
  SPEAKER_02: the issue of refunds will significantly go down.
• 36:43
  SPEAKER_02: We wait and see with the auto population.
• 36:46
  Hopefully that will reduce the needs for laborious audits for
• 36:52
  refunds by the commissioner.
• 36:54
  SPEAKER_02: But we wait and see.
• 36:55
  SPEAKER_02: Objections?
• 36:56
  SPEAKER_02: They want to reduce the time for filing objections and filing appeals.
• 37:00
  To take it from 30 working days back to what it was to 30
• 37:05
  calendar days or 60 calendar days.
• 37:08
  I don't think this would be a good move given that December
• 37:11
  holidays can be a very
• 37:12
  SPEAKER_02: tricky period.
• 37:13
  SPEAKER_02: When offices close on the 10th of December and resume one month later,
• 37:19
  SPEAKER_02: since first or second week of January,
• 37:21
  SPEAKER_02: you find that
• 37:23
  SPEAKER_02: An objection was received in the middle of December.
• 37:25
  SPEAKER_02: Nobody saw it or nobody was available to respond to it.
• 37:30
  SPEAKER_02: And your 30 days have elapsed or are nearly elapsing.
• 37:34
  And the commissioner may say that closing your office may not
• 37:37
  have been a good reason.
• 37:39
  So I think this will not be good to take us back to these days
• 37:43
  when calendar days are applied.
• 37:46
  The commissioner now cannot refuse to give a private ruling on
• 37:50
  account of a
• 37:51
  SPEAKER_02: previous ruling has been given or a public ruling had been given.
• 37:56
  SPEAKER_02: So sometimes the commissioner does refuse to give such rulings.
• 38:00
  And sometimes your application may be more nuanced than what is
• 38:05
  already in an
• 38:06
  SPEAKER_02: existing drilling.
• 38:07
  SPEAKER_02: So I think this is a good move.
• 38:09
  SPEAKER_02: Then the other issue is on data protection.
• 38:13
  So the commissioner wants to be able to see anything that you
• 38:17
  hold as a company,
• 38:19
  SPEAKER_02: whether it is personal information,
• 38:21
  SPEAKER_02: trade secrets,
• 38:23
  and any other private information or any information you
• 38:26
  consider private.
• 38:27
  SPEAKER_02: I heard the minister saying that provision was...
• 38:30
  a duplicate because the Tax Procedures Act requires the
• 38:34
  commissioner to observe the
• 38:36
  SPEAKER_02: Data Protection Act.
• 38:38
  However,
• 38:39
  this provision was meant to emphasize what is already in the
• 38:42
  Data Protection Act.
• 38:44
  SPEAKER_02: So repealing it,
• 38:45
  SPEAKER_02: sometimes when you give out information,
• 38:48
  SPEAKER_02: you may hope that it will be used for the intended purpose,
• 38:52
  SPEAKER_02: but sometimes it may not.
• 38:54
  SPEAKER_02: So I think that may be a slightly retrogressive move.
• 38:58
  SPEAKER_02: And during public participation, this should be vehemently opposed.
• 39:02
  SPEAKER_01: Thank you, Ang, for that elaborate clarification on the TPA changes.
• 39:08
  SPEAKER_01: For our listeners,
• 39:09
  TPA is the Tax Procedures Act and it mainly covers the tax
• 39:14
  administrative aspects
• 39:15
  SPEAKER_01: of all the domestic tax laws.
• 39:18
  That is administrative aspects of the Infant Tax Act,
• 39:21
  VAT Act and the Excess Duty Act.
• 39:24
  SPEAKER_01: Two questions for you, starting with the aspects of refunds.
• 39:31
  Say,
• 39:31
  the proposed change to give a refund decision from 90 to
• 39:37
  proposed one candidate.
• 39:38
  SPEAKER_01: This is a good move.
• 39:40
  SPEAKER_01: Maybe you can elaborate to us how this is good from the taxpayers.
• 39:45
  It appears it's intended to make the refund application process
• 39:50
  longer holding the
• 39:52
  SPEAKER_01: taxpayers' work capital.
• 39:58
  SPEAKER_01: So currently,
• 40:04
  the refund process requires the commissioner to ascertain a
• 40:07
  refund within 90 days.
• 40:10
  SPEAKER_02: Given that department sometimes can be inundated by refund applications,
• 40:14
  SPEAKER_02: what happens in 90 days end,
• 40:16
  SPEAKER_02: then the commissioner has not made a decision.
• 40:18
  SPEAKER_02: So under Section 47,
• 40:20
  SPEAKER_02: then where the commission has not made a decision,
• 40:22
  then you have to take it to the tax appeal tribunal because a
• 40:26
  refund decision is an
• 40:27
  SPEAKER_02: appealable decision.
• 40:29
  SPEAKER_02: So you take it to the tribunal.
• 40:30
  SPEAKER_02: That will lengthen the process even further.
• 40:33
  SPEAKER_02: So if the commission has been given 120 days, then he has...
• 40:37
  SPEAKER_02: ample time to consider that application and give you a decision.
• 40:43
  SPEAKER_02: You'll find sometimes,
• 40:45
  especially for any expenses that relates to a picture where
• 40:49
  they're not in
• 40:50
  SPEAKER_02: e-themes,
• 40:51
  SPEAKER_02: then determining the authenticity of certain documents may take long,
• 40:56
  SPEAKER_02: determining whether the supplier has
• 40:59
  SPEAKER_02: made the supply, that will take long.
• 41:01
  SPEAKER_02: Remember the issue of missing trader comes in,
• 41:05
  SPEAKER_02: so someone has claimed inputs,
• 41:06
  SPEAKER_02: the other person has not declared outputs.
• 41:09
  SPEAKER_02: So all these things used to complicate things a lot.
• 41:13
  SPEAKER_02: So I think giving them an extra one month in my view is a good move.
• 41:19
  SPEAKER_02: In the scheme of things, in terms of working capital, 120 days, 90 days,
• 41:25
  That's even within the bounds of how big corporates take to pay
• 41:30
  or settle any debts
• 41:32
  SPEAKER_02: outstanding to smaller businesses or SMEs.
• 41:36
  SPEAKER_02: I don't see that as being unreasonable.
• 41:39
  SPEAKER_01: Thanks, Hans, for that clarification.
• 41:41
  SPEAKER_01: At this point, we will change gears back to Anne Magandru.
• 41:46
  SPEAKER_01: And I know,
• 41:47
  SPEAKER_01: Anne,
• 41:47
  SPEAKER_01: you have not exhausted all the income tax changes,
• 41:51
  SPEAKER_01: but I think you will still pack it at that,
• 41:54
  SPEAKER_01: address it at the end.
• 41:56
  SPEAKER_01: So you will come in and give us a glimpse of the VAT related changes.
• 42:03
  But before that,
• 42:05
  there's one question from the audience on fringe benefit tax.
• 42:11
  SPEAKER_01: Maybe you can elaborate to us what really the change is.
• 42:15
  I assume currently once the fringe benefit is computed,
• 42:19
  then you tax at the normal rate of 30%.
• 42:23
  You can elaborate clearly what really is the change in this
• 42:27
  bill when it says the
• 42:29
  SPEAKER_01: tax applicable rate will be the corporate rate.
• 42:32
  So elaborate to the audience whether there's any tangible or
• 42:36
  change that will
• 42:38
  SPEAKER_01: affect their fringe benefit.
• 42:40
  SPEAKER_01: And then you move on to the VAT changes.
• 42:43
  SPEAKER_00: Basically what happened in December through the tax reform section,
• 42:47
  SPEAKER_00: we did the Income Tax Act,
• 42:48
  SPEAKER_00: we used to call it Section 34,
• 42:50
  SPEAKER_00: which provided for tax rates.
• 42:51
  And that is where you would find the guidance around the tax
• 42:54
  rate for which benefit tax.
• 42:56
  SPEAKER_00: So when this...
• 42:57
  SPEAKER_00: Act was enforced,
• 42:58
  SPEAKER_00: then there arose a gap in terms of what is this rate,
• 43:02
  SPEAKER_00: because now we do not have Section 34,
• 43:05
  SPEAKER_00: and then under the schedule that provides for it,
• 43:07
  SPEAKER_00: that is under the third schedule,
• 43:09
  SPEAKER_00: then we find it was only fair now at this point in time,
• 43:13
  SPEAKER_00: it is reinstated.
• 43:14
  SPEAKER_00: So it's purely a reinstatement of fringe benefits tax rate,
• 43:18
  SPEAKER_00: having been erroneously deleted through the Tax Lose Amendment Act.
• 43:22
  SPEAKER_00: So it's just...
• 43:23
  SPEAKER_00: As I said earlier,
• 43:24
  there was a lot of cleanup of this act in the alignment to make
• 43:27
  sure that there's
• 43:28
  flow and there are no obvious gaps that would fit confusion and
• 43:32
  ambiguity for the
• 43:33
  SPEAKER_00: taxpayer.
• 43:34
  SPEAKER_00: So the business of computing fridge benefit still remains.
• 43:37
  SPEAKER_00: The rate is still 30%.
• 43:38
  SPEAKER_00: It's only that they needed to make sure the law is clear to that effect.
• 43:43
  Having said that and also bearing in mind there are so many
• 43:46
  changes also,
• 43:47
  I will move to VAT.
• 43:49
  So I'll start with items which were previously zero-rated and
• 43:53
  now they have been
• 43:55
  SPEAKER_00: moved to the exempt status.
• 43:58
  We have the low materials that are purchased by pharmaceutical
• 44:02
  manufacturers in Kenya.
• 44:04
  So previously the suppliers of such would claim input tax
• 44:08
  because this was zero
• 44:09
  SPEAKER_00: rated,
• 44:10
  SPEAKER_00: but they've been now proposed to exempt this.
• 44:13
  So of course with exemption,
• 44:15
  there's no room for claiming of referred from the KRA.
• 44:18
  SPEAKER_00: Then another item that has moved to the exemption,
• 44:22
  the bracket is the input and all materials that were purchased
• 44:26
  to manufacture
• 44:27
  SPEAKER_00: animal seeds again.
• 44:29
  Then the other item is the issue of transportation of sugar
• 44:32
  cane from farms to
• 44:34
  SPEAKER_00: milling factories.
• 44:34
  SPEAKER_00: This was related now as per the proposed bill.
• 44:37
  SPEAKER_00: This will be exempt.
• 44:39
  SPEAKER_00: We have issues of supply of electric bicycles and also electric buses.
• 44:44
  So we think we are reversing our action around the green
• 44:48
  economy and transportation.
• 44:49
  SPEAKER_00: in energy.
• 44:50
  SPEAKER_00: Then moving up,
• 44:52
  SPEAKER_00: we have a few items now that were previously exempt,
• 44:56
  SPEAKER_00: but now they'll be standard rated,
• 44:58
  SPEAKER_00: meaning now they'll be subject to our activity at 16%.
• 45:01
  Key among them is the weighing machinery that is purchased by
• 45:06
  registered hospitals,
• 45:08
  SPEAKER_00: either locally or that are imported.
• 45:10
  So these were previously exempt,
• 45:12
  but as per the bill,
• 45:13
  then those will be standard rated.
• 45:15
  SPEAKER_00: They'll be taxed at 60%.
• 45:17
  Then we have other equipments that are specialized to develop
• 45:21
  solar and with energy.
• 45:23
  SPEAKER_00: These items were exempt,
• 45:25
  SPEAKER_00: but now as per this provision,
• 45:28
  then the purchase and the importation of the specialized
• 45:31
  equipment for developing
• 45:33
  SPEAKER_00: all generation of solar and with energy will be standard rated.
• 45:37
  Going again is the issue of supplies of goods to entities or
• 45:42
  companies that had
• 45:43
  SPEAKER_00: been given exclusive rights to explore the oil,
• 45:47
  the mining prospecting licenses in Kenya that they make of Talo
• 45:52
  and the like.
• 45:52
  I think this is a sector that as a country was to turn fortunes
• 45:56
  and especially the
• 45:57
  SPEAKER_00: oil exploration.
• 45:58
  SPEAKER_00: And that's why it could be given these exemptions.
• 46:01
  But going by what is out there,
• 46:03
  it seems the issue of oil might still remain
• 46:06
  SPEAKER_00: So if you're supplying now to these companies that are given exploration
• 46:10
  SPEAKER_00: prospecting licenses,
• 46:12
  SPEAKER_00: the supplies will be standard rated as per the proposal in the bill.
• 46:17
  SPEAKER_00: Let me just talk about two other issues that I cannot exhaust.
• 46:21
  We have the issues of vehicles that were specifically designed
• 46:25
  and locally
• 46:25
  SPEAKER_00: manufactured for use transport to a list.
• 46:29
  SPEAKER_00: These are also exempt or they are exempt as per the law,
• 46:32
  SPEAKER_00: but the bill proposal that this now moves to the standard rate.
• 46:36
  And then in line also with the income tax amendment for those
• 46:40
  construction of
• 46:41
  SPEAKER_00: houses under the affordable housing scheme,
• 46:44
  SPEAKER_00: the supplies thereon were exempt.
• 46:46
  SPEAKER_00: As per this proposal, then this will become standard rated.
• 46:51
  SPEAKER_00: Hospitals are also affected.
• 46:53
  SPEAKER_00: Let me go for this one.
• 46:55
  Where previously supplies to construction of and equipping of
• 46:59
  specialized hospitals
• 47:00
  SPEAKER_00: with a bed capacity of 50%,
• 47:03
  SPEAKER_00: such supplies would be exempt.
• 47:04
  SPEAKER_00: But as
• 47:05
  SPEAKER_00: But the bill now, this will become standard rated.
• 47:08
  SPEAKER_00: I know for V18,
• 47:09
  SPEAKER_00: in terms of the key impact to the economy and also what it means,
• 47:14
  SPEAKER_00: because looking at the issue,
• 47:16
  SPEAKER_00: hospitals definitely would say we still have a shortage.
• 47:19
  We just have a lot of facilities given that also the population
• 47:21
  is growing and also
• 47:22
  SPEAKER_00: there are many...
• 47:24
  SPEAKER_00: ailments and are coming up.
• 47:26
  So it's good to have hospitals within reach of the majority of
• 47:29
  the populace,
• 47:30
  SPEAKER_00: but such moves now reversing incentives,
• 47:33
  SPEAKER_00: it might now make even the medical,
• 47:36
  SPEAKER_00: assessing to medical care becoming very expensive for most people.
• 47:40
  SPEAKER_00: So Joe,
• 47:41
  SPEAKER_00: maybe I pose at that point,
• 47:42
  SPEAKER_00: if you have a question,
• 47:43
  then you see whether we can move now to the other specific
• 47:47
  amendments to the VAT on
• 47:49
  SPEAKER_00: other issues than the issue of moving through one tap.
• 47:52
  SPEAKER_01: And thank you,
• 47:53
  SPEAKER_01: Anna,
• 47:54
  for that elaboration on the changes from exempt to vertebra 16%
• 48:01
  and zero-rated to
• 48:03
  SPEAKER_01: exempt.
• 48:04
  SPEAKER_01: I think you can park it apart.
• 48:06
  You can tackle any other changes on the main VAT provisions
• 48:11
  aside from the shared
• 48:12
  SPEAKER_01: use so that it is clear.
• 48:14
  SPEAKER_01: You can just give a brief summary on any other VAT-related changes.
• 48:19
  Maybe one that raises eye blows is around refund of withholding
• 48:24
  VAT credit.
• 48:25
  SPEAKER_00: If you have an excess withholding VAT credit,
• 48:29
  SPEAKER_00: which is withheld by people paying you,
• 48:31
  previously you could be allowed to use that refund to other tax
• 48:35
  liabilities.
• 48:36
  But the bill proposes that you only use such a refund to offset
• 48:40
  similar VATI abilities.
• 48:41
  SPEAKER_00: And we're saying in a case where,
• 48:43
  SPEAKER_00: and if it's in perpetual credit,
• 48:45
  they might never have a chance to claim that excess or refund
• 48:50
  or withholding that.
• 48:51
  So this one we feel is not well thought out and it should be
• 48:56
  amended before the bill.
• 48:58
  SPEAKER_00: Thank you.
• 49:18
  SPEAKER_00: That gives a short period,
• 49:20
  but we'll see how the players in the affected sectors will give
• 49:25
  their participation
• 49:26
  SPEAKER_00: or their views on it before it becomes an act of parliament.
• 49:30
  SPEAKER_00: Let me just mention the last one on the issue of bad debts.
• 49:34
  SPEAKER_00: So if you have bad debts and you want to claim VAT,
• 49:37
  SPEAKER_00: release bad debts,
• 49:38
  SPEAKER_00: previously it would wait for three years.
• 49:41
  Now this will be released to two years as per the bill that it
• 49:45
  is proposed.
• 49:46
  SPEAKER_01: We switch to ANST,
• 49:48
  who will bring it to a close for us on the next tax sets that
• 49:53
  have been affected.
• 49:55
  SPEAKER_01: And so ANST,
• 49:56
  SPEAKER_01: you can give us in a brief summary,
• 49:58
  SPEAKER_01: changes on exercise duty and any changes on the Peace and Levis Act.
• 50:05
  SPEAKER_02: Should we start with the ED Act, Excess Duty Act?
• 50:07
  SPEAKER_02: The bill proposes to change the definition of digital lender.
• 50:11
  There has been litigation around who is a digital lender for
• 50:15
  purposes of the Excess Duty Act.
• 50:17
  So last year we introduced an amendment in December through the
• 50:23
  Tax Laws Amendment Act.
• 50:26
  Now they're amending that amendment to see that a digital
• 50:30
  lender is someone who
• 50:31
  SPEAKER_02: extends credit through electronic medium.
• 50:35
  SPEAKER_02: However,
• 50:35
  I feel this amendment probably would have been surplus given
• 50:39
  that the central bank
• 50:40
  act last year was also amended to include any deposit taking
• 50:45
  lender now is required
• 50:47
  SPEAKER_02: to register under the central bank.
• 50:49
  So basically you have now two provisions under the exercise
• 50:53
  duty that serve almost
• 50:55
  SPEAKER_02: the same purpose,
• 50:56
  the digital lender and a financial institution that is
• 50:59
  registered under the CBK
• 51:01
  SPEAKER_02: Act.
• 51:02
  SPEAKER_02: The digital lender is also licensed under the CBK Act.
• 51:06
  SPEAKER_02: We think there is no need to have two provisions.
• 51:09
  SPEAKER_02: I think we should just remove that whole definition of the rates of tax.
• 51:15
  SPEAKER_02: Also,
• 51:15
  SPEAKER_02: the definition of a digital market list,
• 51:18
  SPEAKER_02: this has now been harmonized with what is in the VAT Act,
• 51:22
  just to see any person who makes any supplies through the
• 51:26
  internet and through a
• 51:27
  SPEAKER_02: platform,
• 51:29
  SPEAKER_02: so that all Act now read the same.
• 51:33
  SPEAKER_02: Then in terms of the tariffs,
• 51:35
  SPEAKER_02: in line with what is in the VAT Act,
• 51:38
  they have included that the East African Common Customs Treaty
• 51:43
  will apply in terms
• 51:44
  SPEAKER_02: of definition of the tariffs using the Excise Duty Act.
• 51:49
  So I think that is a good place to be at because then there is
• 51:54
  no confusion as to
• 51:55
  SPEAKER_02: what any tariff number that is contained in the Excise Duty Act.
• 52:00
  Acts means because anybody could then have had leeway to use
• 52:04
  that word interpretation.
• 52:05
  SPEAKER_02: They've introduced a definition of a term called non-resident suppliers.
• 52:10
  SPEAKER_02: This was not there before.
• 52:11
  SPEAKER_02: We've also introduced a similar term in the Tax Procedures Act,
• 52:16
  SPEAKER_02: but this is now absent in the VAT Acts.
• 52:20
  SPEAKER_02: So when someone is applying for a license for Excise Duty Act,
• 52:25
  the commissioner now will be required to give feedback within
• 52:29
  14 days of receiving
• 52:31
  SPEAKER_02: all required documentation.
• 52:33
  Previously,
• 52:34
  there was no timeline,
• 52:35
  so someone could sit on your application for time on end.
• 52:39
  SPEAKER_02: However,
• 52:40
  I note that the commissioner has not been given a requirement
• 52:44
  to tell the applicant
• 52:47
  which documents are missing and the timeframe for telling the
• 52:49
  applicant which
• 52:50
  SPEAKER_02: documents are missing.
• 52:51
  I think that will be good to include so that it aligns with
• 52:55
  good practice and the
• 52:56
  SPEAKER_02: practice in the Tax Procedures Act.
• 52:59
  SPEAKER_02: where the commissioner,
• 53:00
  SPEAKER_02: when he misses a document,
• 53:01
  he's required to ask you for it and also gives you time to
• 53:05
  respond and provide the
• 53:06
  SPEAKER_02: document.
• 53:08
  SPEAKER_02: In terms of changes, in terms of rates, a lot of rates have changed.
• 53:12
  SPEAKER_02: For me,
• 53:13
  SPEAKER_02: the most notable one was imported eggs,
• 53:16
  SPEAKER_02: onions,
• 53:16
  SPEAKER_02: potatoes,
• 53:17
  SPEAKER_02: potato crisps,
• 53:18
  SPEAKER_02: potato chips will no longer be subject to excise duty.
• 53:24
  SPEAKER_02: I think that is a good move.
• 53:26
  SPEAKER_02: I hope probably the price of such products will go down.
• 53:31
  The rest are nuanced and I'll not want to ghostly that under
• 53:37
  the Miscellaneous Fees
• 53:39
  SPEAKER_02: and Levis Act.
• 53:41
  So the bill has proposed that refunds will be governed by the
• 53:45
  Tax Procedures Act.
• 53:47
  SPEAKER_02: refunds,
• 53:48
  SPEAKER_02: ascertainments,
• 53:49
  repayment of levies will all be under Section 47 of the Tax
• 53:54
  Procedures Act.
• 53:55
  SPEAKER_02: So I think that is a good harmonization to ensure that there is clarity.
• 54:01
  SPEAKER_02: So the rest is just an amendment of rates for various items.
• 54:05
  SPEAKER_02: Several items, the rates have been lowered.
• 54:09
  SPEAKER_02: I think that was the main change under the Miscellaneous Levies Act.
• 54:14
  And one question on the exercise duty for you before you go
• 54:18
  back to Anne.
• 54:19
  SPEAKER_01: Previously, exercise duty has been labeled to be a syntax.
• 54:25
  SPEAKER_01: And historically,
• 54:26
  SPEAKER_01: we have seen,
• 54:27
  SPEAKER_01: of course,
• 54:27
  some areas that are always targeted when the exercise duty
• 54:32
  changes are introduced.
• 54:34
  SPEAKER_01: When you look at this year's exercise duty changes,
• 54:39
  SPEAKER_01: Would you say it is aligned to the same tax philosophy and why?
• 54:45
  SPEAKER_01: In which ways?
• 54:47
  My view is that the Access Duty Act today is less of a same tax
• 54:52
  legislation and
• 54:54
  SPEAKER_02: more of a protectionist legislation.
• 54:57
  SPEAKER_02: So when you feel that you have a sector that you want to protect,
• 55:01
  SPEAKER_02: if you feel there's a sector that you want to nurture,
• 55:04
  SPEAKER_02: the place to go is exercise duty.
• 55:06
  You cannot increase customs because customs increase happens in
• 55:11
  Tanzania,
• 55:12
  in Arusha.
• 55:13
  SPEAKER_02: You cannot use the customs act.
• 55:16
  SPEAKER_02: To increase any rates, you have to go and get concurrent.
• 55:21
  SPEAKER_02: But under excess duty, you can increase taxes any way you want.
• 55:26
  If you decide you want to protect eggs,
• 55:29
  farmers,
• 55:29
  you go and impose an excess duty on eggs.
• 55:32
  If you feel that the market is now sufficiently developed and
• 55:37
  now you can invite
• 55:38
  SPEAKER_02: competition,
• 55:39
  SPEAKER_02: you remove the rates.
• 55:41
  If you feel that you've protected long enough and a protection
• 55:45
  has happened and it
• 55:46
  SPEAKER_02: has created shortages,
• 55:48
  SPEAKER_02: then you go and vary the rates.
• 55:50
  SPEAKER_02: So excess duty is more of a protectionist.
• 55:53
  Of course,
• 55:53
  it still retains its whole character of syntax,
• 55:56
  but there are very few sin items.
• 55:58
  the alcohols and the cigarettes,
• 55:59
  and probably petroleum products and coal.
• 56:03
  SPEAKER_02: Most of the others are just protectionist measures.
• 56:05
  SPEAKER_02: And then for services,
• 56:07
  SPEAKER_02: it's just services that are exempt from VAT,
• 56:10
  SPEAKER_02: especially the financial sector,
• 56:12
  SPEAKER_02: are subjected to excise duty.
• 56:14
  SPEAKER_01: Have I answered your question?
• 56:16
  SPEAKER_01: Yes, Ernst, you have answered, and maybe I have arrived at that.
• 56:20
  Looking at the Africa Continental Free Trade Area Act that has
• 56:25
  been in place for a
• 56:27
  SPEAKER_01: few years back,
• 56:30
  SPEAKER_01: I think from 2023 or 2022,
• 56:33
  SPEAKER_01: would you say is a time that Kenya and indeed other African countries,
• 56:39
  SPEAKER_01: even our neighbors within ESC,
• 56:42
  I re-looked at these domestic taxes that affect import or
• 56:48
  cross-border trade,
• 56:50
  SPEAKER_01: like,
• 56:50
  SPEAKER_01: let's say,
• 56:50
  SPEAKER_01: DT,
• 56:51
  and looked at a way to ammonite them across ESC and the broader
• 56:57
  African region.
• 56:58
  SPEAKER_01: What are your thoughts around that?
• 57:00
  SPEAKER_02: That is correct.
• 57:02
  SPEAKER_02: In terms of rules of origin,
• 57:03
  when you have a free trade area that has been put in place and
• 57:07
  an item meets the
• 57:09
  SPEAKER_02: rules of origin requirements in terms of percentages and content,
• 57:13
  SPEAKER_02: then imposing such duties
• 57:15
  SPEAKER_02: can be a challenge.
• 57:17
  Many East Africans had raised issues around non-compliance to
• 57:22
  the protocol.
• 57:23
  SPEAKER_02: So you'd find many of the amendments,
• 57:27
  many provisions under the Excess Duty Act will recognize the
• 57:32
  rules of origin for
• 57:33
  SPEAKER_02: the East African community.
• 57:35
  But you go beyond the East African community,
• 57:37
  Kenya has so many protocols.
• 57:39
  The UK government,
• 57:41
  the European Union,
• 57:43
  OMESA,
• 57:44
  the African free trade area.
• 57:46
  So implementation of this then makes it very difficult because
• 57:50
  then someone has to
• 57:51
  SPEAKER_02: understand,
• 57:51
  SPEAKER_02: okay,
• 57:52
  SPEAKER_02: which country am I bringing my goods from?
• 57:55
  SPEAKER_02: What does the protocol provide?
• 57:57
  SPEAKER_02: Is there any tariff or duty exemptions provided in that protocol?
• 58:02
  SPEAKER_02: So just like we have with the income tax,
• 58:05
  SPEAKER_02: when you're dealing with double taxation agreements,
• 58:08
  SPEAKER_02: you,
• 58:08
  the trader or the business person has to then be clear which
• 58:13
  items fall within the
• 58:14
  SPEAKER_02: excess duty act.
• 58:16
  SPEAKER_02: What does a specific protocol and the rules of origin provide?
• 58:21
  SPEAKER_02: And then look for the most appropriate rates.
• 58:24
  So this gives double work to everyone so that then probably
• 58:29
  only goods that come
• 58:30
  SPEAKER_02: from places that are not protected will be subjected to these taxes.
• 58:34
  SPEAKER_01: Thank you, Ernst.
• 58:36
  SPEAKER_01: I know there are many other proposals that we may not have tackled in our
• 58:42
  SPEAKER_01: conversation this evening,
• 58:44
  but we will be addressing them on a new basis in anyone in our
• 58:48
  audience with any
• 58:50
  SPEAKER_01: person.
• 58:50
  SPEAKER_01: So at this point,
• 58:52
  SPEAKER_01: I will request Anne and then subsequently,
• 58:56
  SPEAKER_01: Ernst,
• 58:56
  SPEAKER_01: maybe you can explain to us the next steps.
• 59:00
  SPEAKER_01: in terms of debating this bill and from your experience,
• 59:05
  SPEAKER_01: what do you expect in terms of public participation,
• 59:11
  SPEAKER_01: what we have seen in previous bill?
• 59:13
  Yes,
• 59:13
  basically what we expect is now this bill will go for public
• 59:17
  participation.
• 59:18
  SPEAKER_00: We expect other practitioners,
• 59:20
  sector players will present their input for consideration by
• 59:25
  the parliament through
• 59:26
  SPEAKER_00: the committee on budgeting.
• 59:28
  SPEAKER_00: So, well, we cannot say with certainty what we expect.
• 59:32
  SPEAKER_00: Looking at last year,
• 59:33
  things didn't go as expected because there was a request for
• 59:37
  change to the then
• 59:38
  SPEAKER_00: FNAS B-2024,
• 59:39
  but almost that was not listened to and didn't go so well as
• 59:42
  part of the population
• 59:44
  and that's why the bill was withdrawn before it was ascended to
• 59:46
  another parliament.
• 59:48
  So we just hope that this year things will be different and the
• 59:51
  views of the
• 59:52
  various stakeholders be considered to ensure that we'll
• 59:56
  transition from the B to an
• 59:57
  SPEAKER_00: act of parliament.
• 59:58
  SPEAKER_00: Maybe what I would ask,
• 1:00:00
  get affiliated to one of the Median Association or organized
• 1:00:03
  groups that do prepare
• 1:00:05
  proposals and go and present so that your views out there can
• 1:00:09
  be incorporated with
• 1:00:09
  SPEAKER_00: the rest of the people.
• 1:00:11
  And we hope that this is not just a thick box exercise,
• 1:00:14
  but there will be results.
• 1:00:17
  So that is what I would say,
• 1:00:19
  Joe,
• 1:00:19
  in terms of the next step for this bill.
• 1:00:22
  SPEAKER_01: The challenge to you is to elaborate to us whether in your expectations,
• 1:00:28
  this bill has met the provisions of the medium-term revenue
• 1:00:34
  strategy and the
• 1:00:36
  SPEAKER_01: national tax policy.
• 1:00:39
  SPEAKER_01: And areas that you expect the decision makers,
• 1:00:43
  SPEAKER_01: the policy makers,
• 1:00:45
  would look into more keenly to ensure that our future
• 1:00:49
  money-related deals mirror
• 1:00:52
  SPEAKER_01: the MTRS and the national tax policy.
• 1:00:55
  SPEAKER_01: The easiest question, is this a money bill?
• 1:00:59
  SPEAKER_02: I think,
• 1:00:59
  SPEAKER_02: yes,
• 1:01:00
  it finally goes to a place where the Finance Act meets the
• 1:01:03
  definition of a money
• 1:01:04
  SPEAKER_02: bill as per the Constitution.
• 1:01:06
  SPEAKER_02: It has early tax issues and tax incidental issues.
• 1:01:09
  SPEAKER_02: It does not have any other miscellaneous items.
• 1:01:12
  In terms of the tax policy,
• 1:01:14
  I have a lot of concerns around the implementation of tax
• 1:01:18
  policing.
• 1:01:19
  SPEAKER_02: The National Tax Policy was put in place in 2023.
• 1:01:22
  We had expected by this time,
• 1:01:24
  we had matured enough to comply with the national tax policy.
• 1:01:29
  National tax policy says,
• 1:01:31
  one,
• 1:01:31
  do not change things more frequently than five years.
• 1:01:35
  SPEAKER_02: You'll find that there are some amendments that were made in 2023,
• 1:01:39
  SPEAKER_02: 2022,
• 1:01:42
  SPEAKER_02: 2021,
• 1:01:39
  SPEAKER_02: that we're still in the implementation phase of those amendments.
• 1:01:48
  SPEAKER_02: And now the Treasury is proposing to amend again.
• 1:01:52
  SPEAKER_02: And some of these add to the negative.
• 1:01:54
  SPEAKER_02: With regards to the investment incentives,
• 1:01:57
  SPEAKER_02: I think the proposal to repeal several of these incentives is a bad wolf,
• 1:02:03
  SPEAKER_02: ill-advised.
• 1:02:05
  SPEAKER_02: First of all,
• 1:02:06
  it's minimizes the incentives to invest in Kenya because it's
• 1:02:10
  now crystallizes that
• 1:02:12
  SPEAKER_02: Kenya has a very erratic tax policy.
• 1:02:16
  SPEAKER_02: Taxes will change at a heartbeat and incentives will be exterminated or
• 1:02:21
  SPEAKER_02: extinguished without no more than two months notice.
• 1:02:25
  And if you had planned a huge project with the tax incentives
• 1:02:30
  in mind,
• 1:02:31
  you'd be damned.
• 1:02:33
  Now you have to go back to the drawing board and redesign your
• 1:02:36
  project in light of
• 1:02:37
  SPEAKER_02: the new tax tractor.
• 1:02:39
  SPEAKER_02: And even after you've redesigned that new project,
• 1:02:42
  SPEAKER_02: you don't know what will happen in the future.
• 1:02:44
  SPEAKER_02: Tax changes may happen and we don't really care about you, the investor.
• 1:02:50
  SPEAKER_02: Probably this may reduce...
• 1:02:52
  SPEAKER_02: Time to market for certain investments.
• 1:02:56
  SPEAKER_02: Some people will be forced.
• 1:02:57
  Anyone who has not applied for any exemptions yet or someone
• 1:03:02
  who has a project in
• 1:03:04
  SPEAKER_02: the pipeline or is envisioning a project,
• 1:03:06
  they have to go back and redo their numbers again to reflect
• 1:03:10
  this new reality,
• 1:03:11
  SPEAKER_02: which is not good.
• 1:03:13
  SPEAKER_02: So we're there and we're looking to increase employment.
• 1:03:17
  However,
• 1:03:17
  we're doing our best to ensure that we don't have employers in
• 1:03:21
  Kenya.
• 1:03:21
  SPEAKER_02: So for me, that was the saddest point of this bill.
• 1:03:25
  There are very many negative proposals that if you allow them
• 1:03:31
  to stay for another
• 1:03:32
  SPEAKER_02: five years,
• 1:03:33
  SPEAKER_02: you give them a sunset date of say 2035 for at the earliest 20 to 30,
• 1:03:39
  SPEAKER_02: then you give people a lead sign to reorganize,
• 1:03:42
  SPEAKER_02: arrange,
• 1:03:43
  SPEAKER_02: and also do all the necessary planning in light of the sunset days.
• 1:03:47
  SPEAKER_02: In developed countries, such clauses are given sunset dates.
• 1:03:50
  SPEAKER_02: Proper sunset and not just two months for one year.
• 1:03:54
  SPEAKER_02: One year for a huge project is an abrupt stoppage.
• 1:03:58
  SPEAKER_01: Thank you,
• 1:03:59
  SPEAKER_01: Anne,
• 1:03:59
  for your comments and your lamentations around the deal in
• 1:04:03
  terms of affecting the
• 1:04:06
  SPEAKER_01: employers,
• 1:04:06
  current employers and potential employers that would be looking
• 1:04:11
  at affecting up in
• 1:04:12
  SPEAKER_01: Kenya.
• 1:04:12
  SPEAKER_01: And of course,
• 1:04:13
  SPEAKER_01: thank you,
• 1:04:14
  SPEAKER_01: Anne,
• 1:04:14
  for your comments also around the next steps and where our
• 1:04:18
  audience can chip in.
• 1:04:20
  SPEAKER_01: Obviously,
• 1:04:21
  the National Assembly will be publishing a notice to share the
• 1:04:26
  timelines within
• 1:04:27
  which we can submit our proposals and our memorandums on areas
• 1:04:33
  that we need to look
• 1:04:34
  SPEAKER_01: at.
• 1:04:35
  SPEAKER_01: And obviously,
• 1:04:36
  Mango Capital will be submitting a memorandum on some of the
• 1:04:40
  areas that we have
• 1:04:41
  SPEAKER_01: touched on today.
• 1:04:43
  SPEAKER_01: that we think our MPS need to relook at.
• 1:04:46
  Ladies and gentlemen,
• 1:04:48
  we would not want to belabor the discussion that we have made.
• 1:04:53
  SPEAKER_01: I know there are any that we may not have tackled,
• 1:04:57
  especially on areas to do with the transfer pricing on the
• 1:05:01
  advanced pricing
• 1:05:02
  SPEAKER_01: agreements,
• 1:05:03
  SPEAKER_01: which will be effective by 1st of January 2026.
• 1:05:09
  SPEAKER_01: other than that most of the other proposals
• 1:05:13
  First of the year will be effective from the 1st of July this
• 1:05:18
  year,
• 1:05:19
  2025.
• 1:05:20
  SPEAKER_01: So that brings us to a close on this year's Finance Bill 2025 basis.
• 1:05:27
  SPEAKER_01: Thank you very much for sticking around with us to the very end.
• 1:05:31
  SPEAKER_01: And I hope we had an enlightening discussion around the Finance Bill.
• 1:05:36
  SPEAKER_01: We hope you will be able to debunk the need and the propaganda.
• 1:05:43
  SPEAKER_01: around this being where you see it, doing rounds in social areas.
• 1:05:47
  SPEAKER_01: And on that,
• 1:05:48
  I wish you a good evening and be on the lookout for more of
• 1:05:53
  thought-provoking
• 1:05:54
  SPEAKER_01: experiences from Wango Capital.
• 1:05:57
  SPEAKER_01: Thank you and have a good evening.