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As we crawl towards the final leg of the fiscal year 2022/2023, the National Treasury tabled the Finance Bill, 2023 (the Bill) before the National Assembly on Thursday, 4 May 2023. The Bill proposes a raft of tax changes that are geared towards expanding the tax base and raising revenues to meet the government’s ambitious budget proposal of KES 3.6 trillion for the year 2023/2024. This is an 8% surge from the 2022/2023 fiscal budget.

Following Article 210 of the Constitution of Kenya 2010 and Section 35(2) of the Public Finance Management Act which requires public participation in all public finance matters, the budget estimates were laid bare to the public in a bid to garner their input through the National Assembly until May 20, 2023. In retrospect to the call for public participation, Kenyans on social media did not hold back in giving their opinions. Some felt that the new taxes being proposed for introduction were an attempt by the new regime to choke citizens with taxes while others felt that this year’s proposed fiscal budget was more inclined towards helping the low-income earners, “the hustlers”.

Generally, while they are all positive changes and have been welcomed with open arms, there are other changes that brought about a heated debate among the members of the public. In this month’s column, we ask for our readers, what really are these changes?

Exemption of Liquefied Petroleum Gas (LPG) from Value Added Tax (VAT)

The current regime has made it clear that it aims at spearheading the country to 100% LPG usage by 2025. Over the past years, LPG has been on the decline following the re-introduction of the 16% VAT on cooking gas and the high costs of crude globally due to the Russia-Ukraine war. Kenya re-introduced a VAT of 16% on LPG in July 2021, causing a further rise in prices but was later halved to 8%, after a public uproar.

This fiscal year’s Bill proposes to slash the 8% VAT applicable to LPG and make LPG exempt from VAT. In addition, the importation of LPG is proposed to be exempted from import declaration fees and railway development levies. This move will ensure LPG becomes more affordable, hence reducing the appetite for wood fuel which has led to illegal logging in the past years. For a government that seems very keen on joining the global community in the efforts to mitigate the deleterious effects of climate change, this proposal is a welcome move and offers an assurance that the war on global warming will be won by action and not mere lip service.

Taxation of Employee Stock Ownership Profits (ESOP) benefits for employees of start-ups pushed forward

In the proposed Bill, Taxation of ESOP benefits for employees whose income is below Ksh 100 million and who have been in existence for less than 5 years will be deferred and not taxed immediately. The option is exercised but will be taxed within 30 days of the earlier of the expiry of 5 years from the date the option was granted, the disposal of the shares by the employee, or the date the employee ceases to be an employee of the eligible start-up.

Currently, employees pay taxes, immediately on the gains accrued between the dates they became eligible when they exercised the share option.

The proposal follows remarks made by Kenya’s President, Dr. William Ruto, during the American Chamber of Commerce regional business summit earlier in March this year, where he had hinted at the change stating that he had received complaints over the imposition of benefit tax “even before the value realized”. The shift is part of the government’s plan to make Kenya an attractive business destination.

Kenya Revenue Authority’s (KRA) power to adjust excise duty rates for inflation slashed

The Bill proposes to repeal Section 10 of the Excise Duty Act which empowers KRA,with the approval of the Cabinet Secretary, to by notice in the Gazette adjust the specific rate of excise duty once every year to take inflation into account. This comes as a relief, especially to business owners, who have often accused KRA of being insensitive by their constant inflation adjustment despite Kenyans struggling to make ends meet and businesses grappling with global shocks.

Introduction of Digital Assets Tax targeting

Very keen to target anyone who owns a platform or facilitates the exchange or transfer of digital assets, digital asset tax is proposed at the rate of 3% and will be applicable to the income derived from the transfer or exchange of digital assets. The Finance Bill mandates that individuals involved in transactions of digital assets such as Non Fungible Tokens (NFTs) and cryptocurrencies pay taxes. The Bill defines digital assets as anything of value that is intangible and generated through cryptographic or other means.

This proposal comes despite the Central Bank of Kenya’s repeated warnings against crypto transactions by financial institutions and the general public.

On the flip side, Kenya is ranked number one in Africa, in peer-to-peer cryptocurrency transaction volumes, hence this might be a great source of revenue.

Payment of 20pc for tax appeal deposit

Last year , tax experts raised constitutional questions over a proposal requiring firms and individuals to deposit half of the tax demands by the Kenya Revenue Authority(KRA) before escalating the dispute from the appeals tribunal to the High Court when the Bill was introduced. However, former treasury cabinet secretary, Ukur Yatani, said the proposed changes were aimed at encouraging out-of-court settlements for faster resolution of cases so as to unlock billions of shillings tied in legal processes for years. However, the bill was shot down by Members of Parliament arguing that it would harm businesses.

This year the bill proposes to introduce a requirement under section 32(1) of the Tax Appeals Tribunal Act for taxpayers who appeal the decision of the tribunal to deposit with the commissioner 20% of the disputed tax as security before filing an appeal at the High court. The Bill also proposes to introduce a new subsection under Section 32 of the Act that guarantees a credit of the security to the taxpayer by the commissioner within 30 days in instances where the hHgh Court decides in favor of the taxpayer.

While this proposal may be justified as an attempt to facilitate alternative dispute resolution mechanisms enshrined under Article 159 (2)(c) of the Constitution, it is clearly a manifest attempt to claw back the right to access to justice under Article 48 of the Kenyan Constitution. The proposal possibly makes it hard for taxpayers to get a fair hearing before the court when they feel aggrieved by KRA. Additionally,despite the assurance by KRA on the security of the deposit, there are likely to be significant delays, especially in tax refunds. This is because the commissioner has a history of delays, especially in tax refunds.

Digital Content Monetization Tax

The Value Added Tax was introduced in 2013 and a digital/electronic component was added in 2020. Another change was proposed-the VAT (Electronic, Internet, and Digital Marketplace supply) Regulations, 2023 in line with the current government’s plan to expand its tax base.

The 2023 regulations made it clear that the digital VAT will comprise of supplies made over the internet an electronic network, or any digital marketplace.

According to the proposal, content creators will have to pay 15% of their online earnings. It goes on to add that, digital content monetization means offering for payment entertainment, social, literal, artistic, educational or any other material electronically through any medium or channel

This includes advertisement on websites, social media platforms or similar networks by partnering with brands including endorsements from sellers such as brands.

This will ensure social media influencers are nabbed into the tax net hence addition of revenue collected.

Deduction of 3% deduction of one’s basic salary towards the National Housing Development Fund

This Bill in particular has caused a tiff between members of the public and the government. The Bill is proposing a 3% deduction of one’s basic salary towards the National Housing Development matched by another 3% from the employer. However, if one is not satisfied with the fund, there are two exit routes which are after 7 years or upon retirement whichever comes first.

A similar plan by the government to raise funds for the construction of Ksh 500,000 housing units annually was stopped in 2018 by the Employment and Labour Relations court. Employees were to contribute 1.5 percent of their earnings to the scheme. The court held that there was no public participation undertaken and that transparency in its implementation was guaranteed.

This Bill was proposed by the previous regime to achieve affordable housing, alongside Kenya Mortgage Refinancing Company and a host of tax incentives that enticed private developers to shift focus to low-income housing. That said, it mainly leans on a heavily packed backdrop whose main theme is a struggling economy that requires urgent intervention. So the question that has been lingering in everyone’s mind is: at this juncture, is saving for a house a priority? Should savings be made mandatory or should it be optional? And another thing, what if the next regime decided to do away with this fund, what happens to the taxpayer’s money?Where can they reclaim it?

Other notable changes were:

Changes in personal income tax rates

The proposal is to introduce a higher personal income tax rate of 35% on the income of individuals which is above KES 6,000,000 per year (KES 500,000 per month). The imposition of the 35% PAYE is expected to negatively impact those whose salaries are above Kes 500,000 per month due to the rates’ sudden spike from 5%.

Taxation of branches/permanent establishments

There is a proposed reduction of the non-resident corporate tax rate from 37.5% to 30% from January 2024. Related thereto, the Bill proposes to tax the repatriated profits of branch / permanent establishment. Repatriated profit is determined by assessing the profits of a branch for a year of income against the increase in the value of its assets.


Historically, Kenya’s collections have always fallen below the budget and previous governments have heavily relied on loans to bridge the gaps. Currently, we have a projected budget of 3.66 trillion yet we are projecting to collect 2.89 trillion in revenue collections. We do not need to dig too deep to understand the crisis. Delayed county remittances, civil servants’ salary delays, stalled infrastructure development as well as the obvious high cost of living are some of the glaring indicators. Therefore, it is advisable for the government to be keen not only on revenue collection but also on prioritizing expenditure.

This article was first published by The Platform.