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May 15, 2023

Kenya proposes tax changes under the Finance Bill, 2023

  • The Kenya Treasury Secretary has proposed changes to the Finance Bill, 2023 that will be tabled before Parliament for debate.
  • Proposed changes would affect the imposition of income tax, value added tax, excise tax and various fees and penalties, as well as tax compliance requirements.
  • This Tax Alert highlights key provisions of the Finance Bill.

Executive summary

On 28 April 2023, the Kenya Treasury Cabinet Secretary presented the Finance Bill, 2023 (the Bill) to Parliament. Conceivably, Parliament may seek stakeholder and public comments before the Bill becomes law. The Bill is presented as a matter of ordinary fiscal budgetary course and would amend various tax laws, including the: Income Tax Act (ITA), VAT Act, 2013 (VAT Act), Excise Duty Act, Tax Procedures Act, 2015 (TPA), and Miscellaneous Fees and Levies Act. The Bill also provides for amendments to other non-tax statutes. Once the Finance Bill, 2023 has been subjected to public participation, it will be tabled before Parliament for debate before it is signed into law by end of June. This Tax Alert summarizes the key proposals contained in the Bill. Unless specifically mentioned, the changes contained in this analysis are expected to take effect on 1 July 2023 after assent by the President.

Detailed discussion

Business and personal tax

Definition of winnings

The Bill has proposed a new definition for the term "winnings" to mean the payout from a betting, gaming, lottery, prize competition, gambling or similar transaction under the Betting, Lotteries and Gaming Act without deducting the amount staked or waged.

Despite there being a definition, the proposal seeks to eliminate ambiguity on the taxation of the payout on the staked and waged amounts.

Taxation of digital content monetization

The growth in social media usage over the years has led to an emergence of a digital economy with a wide array of players. Social media influencers, among others, have taken advantage of the opportunity and monetized the digital economy. Cognizant of the rise in the use of such media/channels, the Government has proposed through the Finance Bill a 15% withholding tax on income earned by resident persons from digital content monetization.

Digital content monetization has been defined in the Bill as offering for payment entertainment, social, literal, artistic, educational or any other material electronically through any medium or channel, through the various forms including social media platforms and advertisement on websites.

Amendment to Turnover Tax (TOT)

The Bill seeks to reduce the minimum threshold of persons who are eligible to pay TOT from KES1 1m to KES 500k and at the same time reduce the upper threshold from KES 50m to KES 15m. The Bill also seeks to increase the turnover tax rate from 1% to 3%.

This will effectively not only bring into the ambit small enterprises that were previously excluded due to the minimum turnover threshold but also drastically reduce the eligible medium enterprises that are eligible to pay TOT. The excluded medium enterprises will be required to account for income tax at the normal rate of 30% on their taxable income.

Taxation of digital assets

The Bill has proposed to add a 3% tax on the income earned from the transfer or exchange of digital assets. The owner of the platform or the person who facilitates the transfer or exchange will be required to deduct the digital asset tax and remit it to the Commissioner within 24 hours after deduction. In addition, the person will be required to file a return detailing the amount of payment, tax deducted and any other details required by the Commissioner. A nonresident person who owns a digital platform where digital assets are transferred or exchanged will be required to register under the simplified tax regime.

If enacted, the proposal will enable the government to boost its revenue collection by tapping into a niche that is growing rapidly.

Effective date: 1 September 2023.

Nondeductibility on TIMS/e-TIMS VAT Noncompliance invoices

The Kenya Revenue Authority (KRA) has recently been enforcing compliance with electronic tax invoicing system. This was rolled out via the Tax Invoice Management System (TIMS) and most recently e-TIMS. All VAT registered taxpayers are required to comply with the relevant regulations.

In an expected far-reaching change for businesses, the Bill now proposes to disallow deductibility for corporate income tax any expenditure or loss where the supporting invoices of the transactions are not generated from an electronic tax invoice management system except where the transactions have been exempted in accordance with the TPA.

A few years ago, Rwanda adopted a similar approach and it is notable that the Kenyan Government recently indicated intention to borrow from certain tax collection measures adopted by Rwanda.

Effective date: 1 January 2024.

Taxation of branches/permanent establishments (PE)

The Bill proposes the introduction of a branch/PE repatriation tax. This is in addition to tax chargeable on the income of the branch. The Bill has proposed a formula for computation of this tax based on the branch's net assets and profitability.

Additionally, the Bill has proposed to reduce the corporate tax rate for branches to 30% from the 2024 year of income.

Kenya appears to adopt an approach that is similar to her neighbour Uganda in a bid to expand the tax base. The proposal may however discourage investments through branches, though the reduced corporate tax rate may act as a cushion.

Effective date: 1 January 2024.

Imposition of withholding tax on local sales promotion, marketing, and advertising services

The Bill seeks to impose a 5% withholding tax (WHT) on local sales promotion, marketing and advertising services offered by resident persons. In 2020, a 20% WHT was introduced on sales promotion, marketing and advertising services rendered by nonresident persons.

This move is aimed at improving Government cashflow while also expanding the tax base.

Effective date: 1 January 2024.

Withholding tax on rental income

The Bill seeks to require all persons who receive rental income on behalf of the owner to deduct and remit WHT to the Commissioner within 24 hours after deduction if the Commissioner has appointed the person in writing as agent. The withholder will also be required to furnish the Commissioner with a return in writing stating the tax deducted and any other information as the Commissioner may require. Further the Commissioner will be expected to furnish the owner of the rental income with a certificate stating the amount of rent and the tax deducted therefrom.

This change is aimed at curbing tax evasion by landlords and also enhancing revenue collection from rental income.

Capital gains tax

The Bill has proposed the following changes with respect to capital gains tax:

  • The Bill proposes to tax capital gains realized on the sales of shares or comparable interests, including interests in a partnership or trust, if, at any time during the 365 days preceding the alienation, the shares or comparable interests derived more than 20% of their value directly or indirectly from immovable property situated in Kenya.
  • The Bill proposes to tax gains derived from the alienation of shares of a company resident in Kenya if the alienator, at any time during the 365 days preceding such alienation, directly or indirectly held at least 20% of the capital of that company. Moreover, the alienator will be required to notify the Commissioner if the transfer will result in more than 20% change in the underlying ownership of the property.
  • The Bill proposes to introduce capital gains tax where a property is transferred in a transaction that is not subject to capital gains tax, and the property is subsequently transferred in a taxable transaction within a period of less than 5 years. The adjusted cost in the subsequent transfer will be based on the original adjusted cost in the first transfer.
  • The Bill has proposed that capital gains tax be due and payable on the earlier of: (i) receipt of full purchase price by the vendor; or (ii) registration of the transfer.
  • The Bill has also sought to limit the existing exemption on capital gains tax on internal group restructurings that do not involve transfer to a third party by proposing that the group needs to have been existence for at least 24 months to qualify for the exemption.

Introduction of intellectual property income

The Bill has proposed to introduce a restriction on the intellectual property income that would be subject to tax at the preferential tax rate.

The proposal is aimed at attracting investors in the intellectual property space into Kenya. However, the Bill has not provided the preferential tax rate that would apply the qualifying intellectual property.

Effective Date: 1 January 2024.

Indirect transfers of interest in licensee or contractor

The Bill has proposed that a licensee or contractor notify the Commissioner when there is a 20% or more change in the underlying ownership the contractor or licensee. Currently, the Commissioner is notified in case of a 10% change in the ownership of the licensee or contractor.

Definition of market value of shares clarified

The Bill seeks to amend the definition of market value of shares to mean either:

  • The mid-market value on the date the option was exercised by the employee where the shares are fully listed on a securities exchange operating in Kenya
  • If the shares are not fully listed, the price which the shares might reasonably be expected to fetch on sale in the open market when the option is exercised

Previously, the market value was pegged at the mid-market value on the date of the employer's grant if the shares are listed in the security exchange operating in Kenya. If the shares were not listed on a securities exchange in Kenya the value was to be agreed upon with the Commissioner before the options were granted. The Bill now requires the valuation to be done at exercise and not at grant and the requirement to agree a value with the Commissioner is proposed to be repealed. The proposals align with the changes in the Finance Act of 2022.

Effective Date: 1 January 2024.

Shares issued to employees by eligible start-ups

The Bill seeks to introduce deferred taxation of shares that eligible start-ups issue to their employees. The benefit shall be taxed within 30 days of the earlier of:

  • The expiry of five years from the end of the year in which the shares were awarded
  • The disposal of the shares by the employee
  • The date the employee ceases to be an employee of the eligible start-up

This provision shall not apply to cash emoluments or other benefits in-kind offered to an employee by virtue of the employment. The taxable value shall be the fair market value of the shares; if the fair market value is not available, the Commissioner shall determine the value of the shares based on the last issued financial statements.

Increased rate for personal tax

The Bill proposes to increase the highest tax band for personal taxes to 35% for employees earning more than KES 500k monthly (KES 6m annually).

Residential rental Income

The Bill proposes to reduce the rate of tax with respect to residential rental income from 10% to 7.5% of the gross rental receipts of a taxable resident person.

Effective Date: 1 January 2024.

National Housing Development Fund

The Bill proposes to introduce contributions to the National Housing Development Fund; the employer shall remit in respect of each employee:

  • The employer's contribution at 3% of the employee's monthly basic salary
  • The employee's contribution at 3% of the employee's monthly basic salary

The total contribution above is capped at KES 5k per month.

Value-Added Tax

Exemption of liquified petroleum gas (LPG) from VAT at 8%

The proposal enhances the affordability of LPG in addition to promoting environmental preservation. However, LPG suppliers will not be eligible for input VAT deduction arising from supplying the LPG. This might lead to the additional cost being passed on to the final consumers.

Clarification on the Place of Supply

The Bill proposes to amend Section 8(2) of the VAT Act by replacing the words "not registered person" with "a registered or unregistered" person. The proposal seeks to clarify that the place where a nonresident supplier provides services shall be deemed to be in Kenya, whether the services are provided to a registered or unregistered person.

Clarification on claim of Input VAT

The Bill proposes to amend Section 17(2) of the VAT Act to clarify that a registered person may not claim input tax if both (i) documentation is lacking and (ii) the supplier has not declared the sales invoice in the return. This proposal aligns with the implementation of the TIMS because the purchaser should be able to confirm that the supplier has declared the supplies before the purchaser claims input.

Expansion of the scope of taxable supplies to include compensations for loss

The Bill proposes that compensation arising from loss of taxable supplies should be treated as a taxable supply and the resultant VAT should be declared such that:

  • If the compensation includes value added tax, the compensation shall be declared, and the value added tax thereon remitted to the Commissioner
  • If the compensation does not include value added tax, the compensation shall be declared and subjected to VAT and the tax remitted to the Commissioner

The implication of this is that insurance compensation will therefore attract VAT at the standard rate if it relates to taxable goods.

Amendment of status of various supplies

  • The Bill proposes to impose VAT on the following products at the standard rate (16%)






Petrol, kerosene, aviation fuel, jet fuel, etc.



0402.29.10 Milk, specially prepared for infants



3002.19.00 Other-Antisera, other blood fractions and immunological products, whether or not modified or obtained by means of biotechnological processes



Taxable goods for direct and exclusive use for the construction of tourism facilities, recreational parks of 50 acres or more, convention and conference facilities upon recommendation by the Cabinet Secretary responsible for matters relating to recreational parks

For the purposes of this paragraph, "recreational parks" means an area or a building where a person can voluntarily participate in a physical or mental activity for enjoyment, improvement of general health, well-being and the development of skills



Bioethanol vapour (BEV) Stoves classified under HS Code 7321.11.00 (cooking appliances and plate warmers for liquid fuel)



Fetal Doppler-Pocket (Wgd-002) Pc and pulse oximeter-finger held (Gima brand) Pc of tariff number 9018.19.00 upon approval by the Cabinet Secretary responsible for matters relating to health



Certain capital goods that the Cabinet Secretary determines promote investment in the manufacturing sector may be exempted; the value of the investment must be at least KES 2b



Taxable services for direct and exclusive use for the construction of tourism facilities, recreational parks of 50 acres or more, convention and conference facilities upon the recommendation by the Cabinet Secretary responsible for matters relating to recreational parks



Taxable services for direct and exclusive use for the construction of specialized hospitals with accommodation facilities upon recommendation by the Cabinet Secretary responsible for health, who shall issue guidelines for the criteria to determine the eligibility for the exemption



  • The Bill proposes to amend the VAT status of the following products from Taxable (16%) to Exempt:


Taxable services imported or locally purchased by a company that is both:

(a) Engaged in business under a special operating framework arrangement with the Government

(b) Incorporated for purposes of undertaking the manufacture of human vaccines and whose capital investment is at least KES 10b, subject to approval of the Cabinet Secretary for the National Treasury, on recommendation of the Cabinet Secretary for Health

The exportation of taxable services

Transfer of business as a going concern

The exemption of the above services implies that suppliers will not be entitled to a claim of input tax. Also, suppliers who exclusively deal in these services will need to consider VAT deregistration, as persons dealing wholly in exempt supplies are not required to register for VAT.

Providing exemption for the exportation of taxable services and transfer of a business as a going concern is a welcome development because the change will likely increase foreign investment in the country. This will also ensure Kenya aligns with VAT/GST international best practices.

  • The Bill proposes to amend inbound international sea freight services offered by a registered person from 16% to 0%. Changing from taxable at 16% to zero rated status will mean that taxpayers dealing in these supplies will be eligible for VAT refunds.
  • The Bill proposes to amend the VAT status of the following products from zero-rated (0%) to Exempt:


Inputs or raw materials (either produced locally or imported) supplied to pharmaceutical manufacturers in Kenya for manufacturing medicaments, as approved by the Cabinet Secretary in consultation with the Cabinet Secretary responsible for matters relating to health

All inputs and raw materials, whether produced locally or imported, supplied to manufacturers of agricultural pest control products upon recommendation by the Cabinet Secretary responsible for matters relating to agriculture

Agricultural pest control products

Transportation of sugarcane from farms to milling factories

Fertilizers of Chapter 31

Inputs or raw materials locally purchased or imported by manufacturers of fertilizer as approved by the Cabinet Secretary responsible for matters relating to agriculture

All tea sold for the purpose of adding value to another product before exportation, subject to approval by the Commissioner of Customs

The exportation of taxable services in respect of business process outsourcing

Currently, unprocessed green tea is exempt while supply of tea for export to tea auction centers is zero-rated. Changing from zero-rated status to taxable will mean that taxpayers dealing in these supplies will no longer be eligible for VAT refunds.

Excise Duty Act

Adjustment of the specific rate of excise duty

Section 10 of the Act, which allows the Commissioner to implement an annual inflation adjustment of the specific rates of excise duty, is now repealed. Going forward, any change to the rates will be via a Finance Act, or by the Treasury Cabinet Secretary through the Kenya Gazette which has to be laid before the National Assembly within seven days for further approval.

Suspension of licenses

The proposed legislation suggests modifying subsection 5 of Section 20 to give a licensee whose license has been suspended by the Commissioner a 14-day window to appeal the Commissioner's decision.

Excise stamps and markings

New subsections added to Section 28 of the Act, which outlines regulations on excise stamps and markings, make it an offense for a person to (i) deface or print over an excise stamp affixed on any excisable goods or package, (ii) acquire or attempt to acquire an excise stamp without the Commissioner's authority, and (iii) print, counterfeit, make or create an excise stamp without the Commissioner's authority, among other related offenses. Anyone convicted of such offenses may face a fine of up to KES 5m or imprisonment for a term not exceeding three years or both.

Remittance of excise duty

A new section, 36A, has been added to the Act, specifying that excise duty on betting and gaming offered through a platform or other medium must be remitted to the Commissioner by a bookmaker within 24 hours from the close of transactions for the day. The Commissioner may also require taxpayers in any sector to remit excise duty collected on certain excisable services within 24 hours from the close of transactions for the day, by giving notice in the Gazette.

Changes to tax rates

The following are some notable changes to the excise tax rates proposed under the Bill:

Excisable service

Current rate

Proposed rate

Telephone and internet data services



Fees charged for money transfer services by cellular phone service providers



Fees charged for money transfer by Payment Service providers licenced under the National Payments Act, 2011



Money transfer services by banks, money transfer agencies and other financial service providers



Betting, gaming and prize competition



Lottery (excluding charitable lotteries)



Fees charged by digital lenders



Fees charged for advertising on television, in print media, on billboards and radio stations, on alcoholic beverages, and in betting, gaming, lotteries and prize competitions



Miscellaneous Fees and Levies Act

Reduction of Import Declaration Fee (IDF)

The Bill proposes to reduce IDF from 3.5 % to 2.5 % of the customs value on ALL imported goods for home use, including the following goods for which the current IDF is 1.5%:

  • Raw materials and intermediate products imported by approved manufacturers and inputs used
  • Inputs in the construction of houses under an approved affordable housing scheme
  • Goods imported under the East Africa Community Duty Remission Scheme

Reduction of Railway Development Levy (RDL)

The Bill proposes to reduce the RDL rate from 2% to 1.5% of the customs value of goods imported into the country.

Exemption from IDF and RDL

The Bill proposes exemption from IDF and RDL for the following:

  • Goods imported for official use by international and regional organizations having bilateral and multilateral agreements with Kenya
  • Goods imported for official use by international and regional organizations that have bilateral or multilateral agreements with Kenya
  • Goods under Chapter 88 being aircraft, spacecraft, and parts thereof from RDL and IDF
  • Liquefied petroleum gas

Tax Appeals Tribunal Act

Documents to be filed with the Tax Appeals Tribunal

The Bill proposes to amend the Act to allow for provision of additional documents in support of an appeal. The Tribunal may request for additional documents for decision making and this may enhance fair judgement on the appeals.

The proposal may also limit Taxpayers on the appeals that fall under appealable decisions as prescribed under section 3(1) of the TPA i.e., defined as "an objection decision and any other decision made under a tax law other than (a) a tax decision; or (b) a decision made in the course of making a tax decision."

Requirement for security when filing an appeal

The Bill seeks to reintroduce the requirement for taxpayer to deposit with the Commissioner 20% of the disputed tax (or equivalent security) before filing an appeal in the High Court.

If the decision of the High Court is in favour of the Commissioner, the deposited amount will be credited in favour of the taxpayer within 30 days after the determination of the appeal.

Tax Procedures Act

Mutual administrative assistance in the recovery or collection tax claims

The Bill proposes to grant the Commissioner the authority to assist foreign states in collecting uncontested tax claims under an international tax agreement. Under this proposed section, the competent authority of the requesting state must make a request to the Commissioner, who will then issue a notice to the person liable. The counterparty will be required to admit or contest the liability within a specified period. If the person fails to comply with the notice, the Commissioner may initiate recovery proceedings. If the person disputes the taxes, they will be allowed to seek redress in Kenya through the tax dispute resolution processes.

The Bill proposes that the Commissioner will deposit the recovered tax claim amount into a dedicated account at the Central Bank of Kenya and remit it to an account specified by the requesting state. This provision is aimed at domesticating and enforcing the tax agreements entered into between Kenya and other countries on the collection and recovery of taxes.

Repeal of provisions for relief from tax payment resulting from doubt or difficulty in recovery of tax

The Bill proposes to repeal section 37 which empowered the Commissioner to refrain from assessing or recovering unpaid tax due to difficulties in or inability to collect the said tax. This may pose a challenge as it means that uncollectible taxes will continue to accrue penalties and interests to perpetuity despite there being no possibility of enforcement.

Power to collect tax from person owing money to the taxpayer (Agency notice)

The Bill proposes to expand the scope under which the Commissioner can issue agency notices to include instances of:

  • Default in paying a tax instalment agreed upon between the Commissioner and the taxpayer, where the taxpayer had previously requested for an extension of time to pay taxed due
  • Failure to respond to an assessment within the prescribed period
  • Failure to appeal an objection decision within the prescribed timelines
  • Where the taxpayer has made a self-assessment and submitted a return but has not paid the taxes
  • Failure to appeal against a decision of the Tribunal or court.

Appointment of the Value-Added Tax withholding agent

The Bill seeks to reintroduce withholding VAT for VAT payments to registered manufacturers whose value of investment in the preceding three years is at least KES 3b. Further, proposes that withholding VAT shall be remitted to the Commissioner within three days after the deduction. Currently, withholding VAT agents are required to remit the tax on or before the 20th day of the following month.

Offset of overpaid taxes against existing liability

The Bill proposes to amend Section 47 of the TPA to enable taxpayers to offset overpaid taxes against both outstanding tax debts and future tax liabilities. This is a positive change, as currently offsetting is only permitted for future tax liabilities.

The amendment also mandates that refunds for overpaid taxes be issued within six months once the overpayment is ascertained, compared to the current two-year timeframe. In addition, the amendment also introduces a 120-day timeframe for determining applications for overpaid tax offsets and refunds that are subjected to audit.

Extension of ADR timeline

The Bill proposes to amend Section 55 of the TPA and extend the timelines for concluding Alternative Dispute Resolution (ADR) processes from 90 to 120 days. This will be helpful in providing parties with more time to resolve disputes through ADR.

Penalty for failing to comply with electronic tax system

The Bill proposes to repeal Section 86 of the TPA and replace it with a provision introducing new penalty structures for noncompliance with electronic tax invoice issuance, electronic tax return submission, and electronic tax payment. The proposed penalty is KES 1m or an amount equal to 10 times the tax due, whichever is higher. This change aims to ensure adherence with the electronic tax system and enhance tax compliance.

Effective date: 1 September 2023.

Repeal of penalty and interest remission

The Bill proposes to delete Sections 89(6)(7)(8) of the TPA and repeal the waiver application provision that allowed taxpayers to apply for a remission or forgiveness of penalties or interest charges imposed by the tax authority. If passed, this will mean that, from the effective date, taxpayers will not be able to apply for waivers of penalties and interest on defaulting tax payments.


For additional information with respect to this Alert, please contact the following:

Ernst & Young (Kenya), Nairobi

Ernst & Young Société d'Avocats, Pan African Tax — Transfer Pricing Desk, Paris

Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London

Ernst & Young LLP (United States), Pan African Tax Desk, New York

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor


1 KES refers to Kenyan shillings.