A conjecture regarding potential or new tax modifications included in the 2025 Finance Bill

Executive Summary

The Kenyan government is expected to propose new taxes in the 2025 Finance Bill in an attempt to increase revenue, broaden the tax base and comply with international tax regulations. Depending on fiscal trends, economic pressures and policy discussions, including the warnings from the National Assembly Finance Committee, these measures are likely to have an impact on a number of sectors.

Introduction and Background

Targeting undertaxed industries and noncompliance with international tax rules, Kenya's government intends to raise money to meet its ambitious spending goals and growing public debt. The primary goal of this study is to help those who might be impacted by the implementation of new taxes prepare by providing them with advance notice.

Data and Analysis

A hypothetical summary of prospective tax introductions and the industries they would impact is provided below:

1. Digital Economy Tax Expansion: Increasing the DST rate to 1.5% to cover online marketplaces and ride-hailing platforms, as well as extending SEPT to encompass digital services like e-commerce and online education, are among the suggested changes.
2. Introduction to Environmental Levies: The proposed policy, which targets the production, retail and waste management sectors, imposes environmental levies on hazardous goods like single-use plastics and electronic waste as a form of "eco-tax" to promote sustainability.
3. Sugar-sweetened beverage (SSB) excise duty and excise duty adjustments: The Finance Bill is expected to propose an excise tax on sugar-sweetened beverages (SSBs), targeting the beverage and hospitality industries, in an effort to generate revenue and discourage use.
4. Capital Gains Tax Rate Increase and Incentives: With the possibility of raising the CGT rate to spur economic growth, the proposed policy would give Kenyan investment enterprises approved by the Nairobi International Financial Center Authority a 5% preferential capital gains tax rate.
5. Implementing Wealth Tax: Based on their holdings in the luxury goods, real estate and investment industries, high-net-worth individuals are the target of the proposed wealth tax. The goal is to reduce income disparity and increase the wealth of the wealthiest people by collecting money from them.
6. Sector-specific taxes: Higher excise rates will be applied to alcohol and tobacco and additional levies for betting and gambling will be added to the new 16% VAT.
7. Reevaluating VAT Exemptions: Proposed measure involves reviewing and potentially reclassifying certain goods and services from VAT-exempt to standard-rated, affecting sectors like healthcare, education and financial services to simplify the VAT system and increase revenue.

Key Findings

Impact of taxation

• Digital Platforms: Non-resident digital services are subject to higher SEP and withholding taxes.
• Manufacturing: Possible carbon fees and higher raw material excise charges.
• Transportation: Increased fuel-related taxes and import duties on motorcycles.
• Costs will increase for import-dependent industries as a result of IDF/RDL increases.
• Gambling and betting: Higher VAT and excise taxes on promotions and sales.
• Energy: Power producers may be impacted by coal excise taxes and possible carbon levies.
• Retail and consumer goods: increased costs due to the pass-through of VAT and excise taxes.
• Agriculture: Small-scale suppliers' compliance expenses due to reverse invoicing.
• Financial Services: Possible taxes on imported construction supplies.
• Real Estate and Capital Markets: People and organizations engaged in the transfer of financial assets and real estate.

Recommendations

Evaluation of the Economic Impact of Public Response: Since tax increases are frequently the subject of public discussion and possible opposition, the government must take into account the possible economic effects of putting new taxes on consumers and businesses. 

References

2025 Budget Policy Statement

Kenya enacts changes under the Tax Laws (Amendment) Act, 2024 and other legislation

Kenya proposes tax changes under the Finance Bill, 2024