As we usher in the new year, Kenya’s tax landscape is undergoing a transformation with the implementation of key changes outlined in the Finance Act 2023. Let’s delve into these changes and break down their implications for Kenyan individuals and businesses in a way that’s easy to digest.

Taxation of Employment Income

  1. Traveling Allowance:
    • What Changed: Traveling allowances for official duties, based on approved mileage rates, will no longer be taxed as gains from employment.
    • Why It Matters: This shift aims to promote official travel by removing taxation on such allowances, fostering a more equitable tax system.
  2. Club Entrance and Subscription Fees:
    • What Changed: Employer payments of club entrance or subscription fees on behalf of an employee are now considered a taxable benefit.
    • Why It Matters: This change encourages transparency in financial transactions and allows employers to offset such expenditures against their income.
  3. Market Value of Shares and Deferred Taxation:
    • What Changed: The market value of shares for taxation will be determined at the time of option exercise. Employees receiving company shares can defer taxation on the benefit.
    • Why It Matters: This change provides flexibility for employees and aligns taxation with the actual realization of benefits.

Taxation of Repatriated Income for Non-Residents

  1. Repatriated Income Tax:
    • What Changed: Non-residents with a permanent establishment in Kenya face a 15% tax on repatriated income, with a reduced Corporate Income Tax (CIT) rate of 30%.
    • Why It Matters: This measure seeks to regulate non-resident income and aligns with global practices to ensure fair taxation.

Turnover Tax

  1. Threshold and Rate Adjustments:
    • What Changed: The turnover tax threshold is lowered to KShs 25 million, and the rate increased to 3%.
    • Why It Matters: Small businesses are impacted, and understanding these adjustments is crucial for effective financial planning.

Cryptocurrencies and Interest on Mortgages

  1. Cryptocurrency Transactions:
    • What Changed: Income from the transfer or exchange of digital assets, including cryptocurrency transactions, is now subject to a 3% tax.
    • Why It Matters: This change addresses the growing prominence of digital transactions, ensuring their inclusion in the tax system.
  2. Mortgage Interest:
    • What Changed: Individuals can claim mortgage interest expenses up to Kshs 300,000 per year for money borrowed from a cooperative society.
    • Why It Matters: Homeowners benefit from this provision, and understanding it aids in effective financial management.

Critical Explanations

  1. Travelling Allowance and Club Fees:
    • Explanation: Tax exemptions on traveling allowances encourage official travel, while taxing club fees ensures fairness and transparency.
  2. Cryptocurrencies and Repatriated Income:
    • Explanation: Taxing digital asset transactions and repatriated income ensures a level playing field, contributing to a regulated financial environment.
  3. Turnover Tax and Mortgage Interest:
    • Explanation: Adjustments in turnover tax affect small businesses, and the provision for mortgage interest impacts homeowners, necessitating informed financial planning.