Tax Unrest in Kenya: See 11 Taxes Implemented By President Ruto So Far

Tax Unrest in Kenya: See 11 Taxes Implemented By President Ruto So Far

Tax Unrest in Kenya reached its height recently with the protests of youths against plans by President Ruto through the parliament to pass into law the Finance Bill 2024 which proposes the implementation of more taxes.

It is important to state that since the assumption of the office of President in 2022, for President Ruto, it has been a tale of tax reform and the introduction of more taxes.

In the early days of his administration, this move made sense to the citizens of Kenya as they keyed into the government’s direction to ensure the difficulty for a greater cause of national development.

As the years became months, the only thing that seemed to increase in Kenya’s number was the tax rates as other indices of development like employment kept taking a downward dive.

Africataxreview.com, in response to the recent nationwide protests in Kenya that resulted in the loss of lives and property, revisits the history of tax reforms under President Ruto, highlighting 11 significant changes, most of which involved tax increases.

Taxing In Kenya: A Cautionary Tale for African Governments on the Brink

Taxing In Kenya: A Cautionary Tale for African Governments on the Brink

1. Value Added Tax (VAT) on Fuel:

The VAT on fuel has been significantly increased from 8% to 16%. This move has generated considerable controversy, as it directly impacts the cost of living and transportation expenses.

Critics argue that the higher tax will lead to increased prices for goods and services across the board, as fuel is a critical component in various sectors of the economy.

The additional financial burden on consumers is expected to exacerbate the already challenging economic conditions for many households.

2. Housing Levy:

To fund a low-cost housing initiative, a payroll levy was introduced. Initially set at 3%, the levy was later reduced to 1.5% in response to public outcry. This adjustment aims to balance the need for affordable housing with the economic pressures faced by workers.

3. Excise Duty on Motor Vehicles:

A new excise duty has been imposed on imported vehicles, calculated at 2.5% of the vehicle’s value. This duty excludes certain vehicles, such as ambulances and those used by government officials and diplomats.

The introduction of this tax aims to generate additional revenue but has sparked debate over its potential impact on the automotive market.

4. Minimum Top-up Tax:

Multinational firms with a gross turnover exceeding Ksh106 billion are required to pay a minimum top-up tax. This tax is calculated as 15% of net income minus the actual tax rate, multiplied by excess profit.

The introduction of this tax aims to ensure that large corporations contribute their fair share to the national revenue. However, it has raised concerns among businesses about increased operational costs and potential impacts on investment and economic growth.

5. Economic Presence Tax:

This tax targets non-residents earning income from digital marketplaces, including ride-hailing, food delivery, and freelance services. Set at a rate of 20% of gross turnover, this tax aims to capture revenue from the growing digital economy.

While proponents argue that it ensures fair taxation of foreign entities benefiting from the local market, critics warn that it may discourage international investment and innovation.

6. Withholding Tax:

A withholding tax has been introduced on goods supplied to public entities, set at 3% for residents and 5% for non-residents.

This tax also applies to online payments. The aim is to streamline tax collection and ensure that suppliers to public entities and e-commerce transactions contribute to the national revenue.

However, the tax has faced criticism for potentially increasing costs for businesses and consumers, and for the challenges it poses in monitoring and enforcing compliance in the online marketplace.

7. Digital Content Tax:

A new tax has been introduced for digital content creators, requiring them to pay taxes on their earnings. Non-residents are subject to a tax rate of 20%, while residents face a rate of 5%.

This tax aims to capture revenue from the digital economy and ensure that all income generated from digital content is appropriately taxed.

8. Increased Advance Tax for Vehicles:

The advance tax on commercial and passenger vehicles has been increased. For commercial vehicles, the tax is now calculated as the higher of Ksh2,500 per tonne of load capacity per year or Ksh5,000 per year.

Passenger vehicles face a tax of the higher of Ksh100 per passenger capacity per month or Ksh5,000 per year.

This adjustment aims to bolster revenue from the transportation sector but has sparked concerns about higher costs for vehicle owners and potential impacts on affordability and mobility.

9. Fees for Government Services:

The cost of various government services has risen significantly. For instance, replacing a lost passport now costs Ksh20,000, up from Ksh10,000. Additionally, the fees for acquiring and replacing ID cards have also increased.

These adjustments aim to boost government revenue, but they have been met with criticism for placing a heavier financial burden on citizens who need these essential documents.

10. Locum Payments Subject to PAYE:

Temporary assignments for doctors, previously taxed at a 5% withholding tax, will now be subject to the Pay As You Earn (PAYE) system. This change aims to streamline tax collection and ensure consistent taxation across different employment types.

However, it has raised concerns among medical professionals about the potential for increased tax burdens and the impact on their earnings from temporary assignments.

11. Deferred Taxation on Employee Shares:

Shares allocated to employees by eligible startups will now be subject to deferred taxation. These shares become taxable within 30 days of specific events, such as disposal of the shares, the passage of five years, or the cessation of employment.

This policy aims to support startups by providing tax relief in the initial stages while ensuring eventual tax compliance. However, it has raised questions about the timing of the tax liability and its potential impact on employee incentives and retention.