6 Major 2022 Tax Highlights in Kenya

2022 Tax Updates in Kenya
  • The numerous highs and lows experienced in its taxation activities definitely made the year 2022 an unforgettable one for the Kenya Tax Administration.

The 6 major 2022 tax highlights in Kenya is a compendium of the major tax events and tax updates that we reported in the previous year.

During the year there were talks of resolving the VAT refund issue, the taxation of Cryptocurrency was considered, non-compliance and tax evasion were addressed, and certain taxes were adjusted.

6 Major 2022 Tax Highlights in Kenya

The Kenyan Tax Administrating during 2022, featured a whole lot of ups and downs. Here’s a quick tour of just 6 of them.  

Potential Rise in PAYE

May Day celebration of 2022 came bearing gifts as President Uhuru Kenyatta announced a 15% increase in the minimum wage in commemoration of the day.

The increase was intended to help workers cope with the inflationary trend of consumer prices rising by an average of 20% due to the Russia-Ukraine crisis.

The president also took the opportunity to urge the private sector to implement the new increase and ensure that every employer abstains from deducting income (PAYE) from Kenyan’s earnings Ksh. 35,000 and below.

The good news however did not sit well with employers who under the aegis of the Federation of Kenya Employers (FKE) complained of a fragile labor market and depressed earnings citing the high cost of operation for most firms and hard economic times.

They also demanded that the tax-free income bracket be raised from Sh24,000 to Sh35,000 and tax relief bumped up to Sh3,500 from Sh2,400.

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Tackling Tax Evasion

Second on the list of the 6 Major 2022 Tax Highlights in Kenya is the move by the Kenyan Tax Administration to deal with the rampant issue of tax evasion that had gone on for so many years and had accumulated to Kshs.30 billion.

With the help of the Electronic Tax Register (ETR), the government had been able to streamline the collection of Value Added Tax (VAT) while also giving Kenyans a medium to report cases of tax evasion from merchandise bought.

According to KRA, Electronic Tax Register (ETR) is a cash register financial memory that keeps track of every transaction for the trader accounting for VAT levied at the time of making a sale.

How it works is that the ETR generates an Electronic Tax Invoice which comes with a QR code that helps the customer confirm that the VAT on the purchased product has been remitted to the KRA. By doing this, the customer has been able to prevent tax evasion.

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Depletion of Corporate Tax

One of the low moments of 2022 for Kenya was when the Kenya-Corporate tax administration experienced a downward trend as a large number of companies domiciled in the East African nation failed to remit the required corporate taxes by law.

In the previous year, KRA reported that only 9 companies out of 10 in Kenya paid taxes to the administration from the commencement of the fiscal year till the end of the second quarter.

According to the data from KRA, only a paltry sum of 84,428 out of the total 759,164 firms were registered and liable for remitting corporate tax. As of June 2022, this had translated to an 11.12% compliance rate.

Back in 2019, KRA recorded that only about 33, 426 of 401, 306 registered companies then paid corporate taxes which represented an 8.33 percent compliance rate.

Although the compliance rate recorded in 2022 compared to the one of 2019 shows progress, the administration can not record it as a success as the ratio compared to the new taxpayers shows that the number of the compliant company is not commensurate with the new taxpayers added.

As part of its efforts to turn things around, the KRA adopted an enforcement unit that uses various databases to pursue suspected cheats that adopt the falsification of bank statements, and import records, among other details that enable proper tax deduction.

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VAT Refund Issue

After a long time of dealing with the VAT refund headache, President, Dr. William Ruto decided in 2022 to vanquish this problem once and for all.

The president’s administration in addition to effective taxation aims to quadruple the annual supply of housing units which is currently 50,000.

He pointed out during his Mashujaa Day address that despite the VAT in Kenya exemption on inputs being enacted to lower construction costs, investors are yet to reap the benefits.

He then promised to ensure immediate refunds of VAT on construction inputs to resolve challenges hindering investment and close the housing gap of two million units.

In addition, to help settle the country’s debt of Sh8.2 trillion, Dr. Ruto has urged Kenyans to be more consistent with their tax payment.

He pointed out that if the country can increase its tax collections from the current Sh2 trillion, it won’t need to keep borrowing from other countries.

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The Public’s involvement

Another major tax highlight in 2022 was when the Kenya-tax administration invited the public to submit proposals on tax policy measures to the National Treasury for consideration in the preparation of the Finance Bill 2023.

The move was aimed at helping the government achieve its objectives and ensure openness and accountability in tax administration.

According to the Treasury Cabinet Secretary, Njuguna Ndung’u, government departments and agencies, the private sector, non-governmental organizations, and also individuals are part of those invited to submit proposals on tax policy measures for consideration for the Fiscal Budget for the Financial year 2023/ 2024.

Prof. Ndungu explained that the proposals should be in line with Economic Recovery Strategy and the country’s economic blueprint Vision 2030.

At the end of the day, the main idea behind the invitation to submit proposals on tax policy measures was to facilitate the advancement of the country.

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Triple Capital Gains Tax

To round off the year 2022 in our quest to list the 6 Major 2022 Tax Highlights in Kenya, Africataxreview.com reported that the anticipated implementation of the triple capital gains tax that was initially slated to commence from Jan. 1 2023 was beginning to generate some anxiety for the public.

Before the August 9 2022 General Election that saw the emergence of President Ruto, the Kenyan Parliament through the tax administration had approved a triple increment in the rate of tax imposed on earnings from the sale of land, houses, and quoted shares.

This meant that the capital gains tax which was initially set as 5% would now be charged at a rate of 15% starting from January 1, 2023.

The tax increase aimed to help generate higher tax revenues to help fund the Sh3.3 trillion budget.

One of the presumed implications of this increment was that it would cut the profit realized by people selling land, buildings, and company shares outside the Nairobi Securities Exchange (NSE) and also intangible assets such as software and business goodwill.

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A lot of tax events took place in Kenya in 2022 but we’ve been able to compile 6 major 2022 tax highlights.

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