What you need to know about the Tax Laws Amendment Act 2024

Kenyan President, William Ruto signed a series of parliamentary tax bills set to have taken effect on December 27, 2024. This move, aimed at addressing complex economic challenges, has sparked widespread discussion about the government’s approach to sustainable and inclusive solutions.

The Finance Bill 2024, which initially drew sharp criticism and was widely labelled a “flop,” paved the way for these new measures. Concerns erupted nationwide over the increased costs of essential goods, services, and hygiene products, igniting protests across the country. For many hardworking Kenyans already navigating tight financial constraints, the additional taxes pose a significant burden.

The government has now introduced four new tax bills, while structurally distinct from the Finance Bill, share a familiar purpose: tightening financial belts. These measures, though crafted to appear more deliberate, risk further straining individuals and families, raising questions about their long-term viability and fairness.

The challenge remains: how can Kenya balance its pressing economic needs with solutions that are not only effective but also equitable?

The Tax Laws Amendment Act 2024

Proposed amendments to the Top up Tax are poised to reduce disposable incomes, curbing household consumption and savings. For businesses, increased tax burdens raise operational costs and introduce uncertainty, deterring both domestic growth and Foreign Direct Investment (FDI).

Tax Procedures Act Amendments

While amendments to Section 77—excluding weekends and holidays from statutory timelines—are intended to streamline tax compliance, stricter regulations have added layers of complexity for businesses. SMEs, in particular, face significant administrative challenges. The increased cost of compliance, whether through hiring tax specialists or investing in advanced systems, could drive smaller enterprises out of the market, exacerbating unemployment and economic fragility.

Furthermore, the expanded enforcement powers granted to the Kenya Revenue Authority (KRA) have sparked concerns over potential misuse and harassment, raising the stakes for taxpayers already navigating a challenging landscape.

Banking Act (Cap 488) and Central Bank of Kenya Act (Cap 491)

They include a phased increase in the minimum core capital for banks and mortgage finance institutions, rising from KES 1 billion to KES 10 billion by 2027. While these reforms are designed to stabilize the financial sector and attract international players, smaller banks may be forced into mergers or exits, limiting credit access for SMEs and stifling economic inclusivity.

The increased tax on non-resident digital service providers, raised from 1.5% to 3% of gross revenue, further compounds these challenges. By discouraging digital providers from operating in Kenya, the amendment risks curbing technological growth and innovation in an increasingly digital-first global economy.

Standards Act Amendments

The revised Standards Act (Cap 496) enhances regulatory oversight through mandatory manufacturer registration with the Kenya Bureau of Standards (KEBS), expanded compliance requirements, and new laboratory facilities. While these measures aim to ensure product quality and safety, they pose increased costs for businesses.

Moreover, the requirement for foreign inspection bodies to establish a tax presence in Kenya could deter international trade partners, complicate logistics, and push consumer prices higher.

Special Economic Zones (SEZ) Act Amendments

Changes to the SEZ Act (Cap 517A) have introduced measures to enhance investment incentives and simplify operations. However, granting public entities authority to act as SEZ developers raises concerns about crowding out private investment. Excluding certain goods from SEZ benefits may also deter investors who rely on integrated supply chains, potentially undermining the zones’ appeal.

Households

The Tax Laws Amendment Bills have introduced a variety of significant changes that will impact both households and businesses. One notable adjustment is the separation of tax obligations for married couples, who will now be treated as independent tax entities. While this change may provide clarity for some, it also demands careful household financial planning to accommodate the new rules.

Pensions

Pension contributions have been increased from 20% to 30%, reflecting a strong push for long-term retirement security. This move aims to strengthen the financial safety net for retirees, though it could reduce disposable incomes in the short term. In a move to ease past tax burdens, taxpayers who settle VAT obligations for periods before December 2022 will be exempt from interest if these taxes are declared by June 30, 2025.

Credit (Exemptions under the new bills)

For taxpayers who have overpaid, the new laws provide a clearer framework for tax credits, allowing overpayments to be credited within five years for income tax or six months for other tax categories. Changes to the Hire-Purchase Act bring transactions involving deferred payment terms under its purview, which could provide greater regulatory oversight and protections for both buyers and sellers.

Digital Economy

On the digital front, the increased tax rates on digital marketing services pose a challenge to Kenya’s growing digital economy. Higher costs for these services may deter investment and slow down innovation, potentially impacting the competitiveness of Kenyan businesses in global markets. Additionally, the redefinition of royalties under the new laws broadens the scope of taxable income streams, increasing the revenue potential for the government but also creating additional financial obligations for taxpayers.

Amendments in Terminology

Lastly, amendments to the Central Bank of Kenya Act shift terminology from "digital" to "non-deposit taking" institutions, a change designed to refine the regulatory focus on emerging financial services. This adjustment signals the government’s intent to better regulate a rapidly evolving financial sector, though it may introduce new compliance requirements for businesses operating in the space. These amendments reflect a comprehensive approach to modernizing Kenya's tax and financial laws, albeit with potential challenges that require careful navigation by all stakeholders

?The Role of Public Participation

Public participation plays a vital role in the legislative process. Kenya’s Constitution, under Article 118, emphasizes public involvement in lawmaking, as such, public participation is a constitutional requirement aimed at ensuring transparency, inclusivity, and accountability in lawmaking.

However, the limited consultation surrounding these legislative changes has sparked criticism. Stakeholders have expressed concerns about inadequate representation, underscoring the need for transparent and inclusive policy development. Moreover, Public participation is not merely a legal formality but a cornerstone of democratic governance that ensures tax policies align with public interest while addressing economic challenges effectively.

A Collaborative Path Forward

With these laws now enacted, the focus must shift toward monitoring their impacts and fostering collaboration to address challenges. Citizens, businesses, and policymakers must work together to ensure that these amendments drive economic growth without exacerbating inequalities.

The stakes have never been higher. By embracing transparency and maintaining open dialogue, Kenya can navigate these sweeping changes and chart a path towards a balanced and prosperous economic future.