Kenya issues Tax Amendment Bill, 2018

Transcription

1 26 April 2018 Global Tax Alert Kenya issues Tax Amendment Bill, 2018 EY Global Tax Alert Library Access both online and pdf versions of all EY Global Tax Alerts. Copy into your web browser: Executive summary Kenya s Tax Laws (Amendment) Bill, 2018 (the Bill) dated 10 April 2018 and tabled in Parliament on 17 April 2018 proposes amendments to the Income Tax Act (Cap. 470), Stamp Duty Act (Cap. 480) and the Value Added Tax Act (Cap. 476). The Bill is now open for public consultation. Comments are due by 30 April This Alert summarizes the key proposals in the Bill. Detailed discussion Income Tax Act Exemption of licensed Special Economic Zone (SEZ) developers or operators from capital gains tax and compensating tax The Bill proposes to exempt from capital gains tax and compensating tax licensed SEZ developers or operators. This proposal seeks to ensure that the impact of the granted tax incentives is not lost at the point of dividend distribution or sale of a stake to other potential investors. Tax on winnings The Bill seeks to reintroduce a withholding tax of 20% on winnings from betting, lottery, gaming and prizes that are paid to both resident and nonresidents.

2 2 Global Tax Alert This is similar to a proposal which was made through Finance Bill, 2016 but removed due to the challenges of implementing it in cases where one person was involved in multiple transactions. The Bill also seeks to expand the meaning of winnings to include winnings from betting, lotteries, gaming and prize competitions in addition to punters. Tax incentive on home ownership The Bill seeks to double the tax deduction for depositors investing in Home Ownership Savings Plan (HOSP) schemes from KES48,000 per annum to KES96,000 per annum or KES4,000 per month to KES8,000 per month. This is in line with the Government s Big 4 agenda that aims at providing decent and affordable housing to Kenyans. The deduction, however, still falls short of the rise in house prices over the years. Stamp Duty Act This Bill seeks to amend the Stamp Duty Act by exempting first time home owners under the affordable housing scheme. Stamp duty ranges between 2% 4% on the value of the property depending on the location. The incentive will be a positive development for first time home owners. Value Added Tax (VAT) Act Proposed amendments to the VAT Act focus on the exemption of various supplies which are currently zero-rated or standardrated. Whereas exempt supplies are not subject to tax, the zero-rated and standard-rated supplies are taxable at a rate of 0% and 16% respectively. Exemption of previously taxable supplies has the following general implications: Any VAT incurred by the affected suppliers will not be claimable as input tax. This input VAT cost will be expensed by the taxpayer and borne by the final consumers. Where the taxpayer makes mixed supplies, the exemption results in non-deductible input VAT with a similar impact as above. The VAT changes proposed by the Bill include: No. Goods description Current Proposed as per Bill Implication 1 Taxable supplies imported or purchased for exclusive use in the construction of a hotel or conference facility by any licensed Special Economic Zone (SEZ) entity 2 Taxable supplies imported or purchased for exclusive use in the construction of a minimum of 5,000 housing units by a licensed SEZ entity 16% Exempt Development costs are likely to be reduced. 16% Exempt Whereas the supply of residential housing is an exempt supply, Construction material is vatable at standard rate of 16%. Thus exempting construction material from VAT will eliminate the non-deductible VAT currently borne by developers thus lowering the cost of housing in Kenya. The move will make housing affordable to many. On the other hand, construction materials suppliers will not be able to claim input tax credits a move that may result into an increase in the cost of such materials.

3 Global Tax Alert 3 No. Goods description Current Proposed as per Bill Implication 3 The transfer of a business as a going concern by a registered person to another registered person 4 The supply of natural water, excluding bottled water by a National Government, County Government, any political subdivision thereof or approved persons 5 Safety or protective articles of apparel, clothing accessories and equipment for use in registered hospitals and clinics or by county government or local authorities in firefighting 6 Taxable goods supplied to marine fisheries and fish processors 7 Certain medications and approved inputs or raw materials (either produced locally or imported) supplied to pharmaceutical manufacturers in Kenya for manufacturing medications 0% Exempt Parties to the transfer will not be able to claim input VAT related to the transfer, for instance, legal fees, etc. for the VAT incurred. 0% Exempt Any VAT incurred by the affected suppliers of natural water will not be claimable as input tax. This cost will be borne by the final consumers through a higher cost. to claim any input tax incurred in the making of such supplies. This move may result in an increase in the cost of such items. to claim any input tax incurred in making of such supplies which is expected to be passed on to the fisheries and fish processors. Effectively, this means the final consumer bears the additional cost/price. This move will impact efforts to improve the blue economy. to claim any input tax incurred in making of such supplies. Importers and local producers of these raw materials will be forced to pass on their nonrecoverable costs to the manufacturers leading to an increase in production cost and ultimately the end product. 8 Supply of liquefied petroleum gas to claim any input tax incurred in making of such supplies. This cost will be borne by the final consumers a move that may impact gains made towards the use of clean energy. 9 Milk and cream, not concentrated nor containing added sugar or other sweetening matter to claim any input tax incurred in making of such supplies. This cost will be borne by the final consumers. Reverting to exemption of these basic commodities a year later after they had been zero-rated will lead to an increase in their prices rendering them less affordable to the ordinary Citizens.

4 4 Global Tax Alert No. Goods description Current Proposed as per Bill Implication 10 The supply of maize (corn) flour, ordinary bread and cassava flour, wheat or meslin flour and maize flour containing cassava flour by more than 10% in weight 0% Exempt Reverting to exemption of these basic commodities a year later after they had been zero-rated will lead to an increase in their prices rendering them less affordable to ordinary Citizens. 11 Agricultural pest control products to claim any input tax incurred in the making of such supplies. This additional cost will be borne by the final consumers. 12 Qualifying imported passenger baggage including unaccompanied baggage 13 Taxable goods for emergency relief purposes for use in specific areas and within a specified period supplied to or imported by the Government or its approved agent, a non-governmental organization or a relief agency 0% Exempt The change is unlikely to have any adverse impact on this category of persons. to claim any input tax incurred in making of such supplies. This cost will be borne by the final consumers as a higher cost/price. Next Steps The Tax Laws (Amendment) Bill has been committed to the Departmental Committee of Finance and National Planning for consideration with the public invited to provide their comments on the Bill by 30 April, 2018 to the following address: Clerk of the National Assembly P. O. Box Nairobi clerk@parliament.go.ke

5 Global Tax Alert 5 For additional information with respect to this Alert, please contact the following: Ernst & Young (Kenya), Nairobi Catherine Mbogo catherine.mbogo@ke.ey.com Francis Kamau francis.kamau@ke.ey.com Christopher Kirathe christopher.kirathe@ke.ey.com John Gikima john.gikima@ke.ey.com Robert Maina robert.maina@ke.ey.com Ernst & Young Advisory Services (Pty) Ltd., Africa ITS Leader, Johannesburg Marius Leivestad marius.leivestad@za.ey.com Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London Rendani Neluvhalani rendani.mabel.neluvhalani@uk.ey.com Byron Thomas bthomas4@uk.ey.com Ernst & Young LLP, Pan African Tax Desk, New York Silke Mattern silke.mattern@ey.com Dele A. Olaogun dele.olaogun@ey.com Jacob Shipalane jacob.shipalane1@ey.com Ernst & Young LLP, Pan African Tax Desk, Houston Elvis Ngwa elvis.ngwa@ey.com

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