From betting to alcohol and unga: The overview of your new taxes

President Uhuru Kenyatta signed into law the Finance Act, 2019 on Thursday instantaneously bringing on board a whole new raft of taxes to the door step of Kenyans.

While the miscellaneous amendment on the repeal of the interest rate capping law from the Banking Act dominated headlines of the Act’s passage, the Finance Act brought with it more tax provisions with direct implications on Mwananchi.

Betting tax

The betting industry is for the second year running an easy revenue target by government as the Act introduced a new 20 percent excise duty on the amount staked.

While Treasury had in June proposed a lesser charge of 10 percent, Members of Parliament  voted to lift the duty in their attempt to tame participation in the ‘vice’.

Effectively, Kenya’s betting industry represents the highest taxed sector with the duty on staked amounts adding to an already burdening regime.

Previously, betting companies have been paying a 15 percent tax on revenues on top of the 30 percent corporation tax and a 20 percent withholding tax on customer winnings.

‘Sin’ tax

Alcohol and cigarettes follow closely behind betting as the industry retains its ‘easy target’ tag from the revision of excise rates targeted at cigarettes, wines and spirits.

Nearly all tobacco products including electronic cigarettes and tobacco substitutes have seen a jump in excise rates per mille with the substitutes seeing the highest adjustment in rates.

Meanwhile, fruit wines will warrant a new Ksh.189 excise rate per litre from the previous Ksh.157.80.

At the same time, spirits with alcohol content above 10 percent will warrant a new excise charge of Ksh.253 per litre from the previous charge of Ksh.210.40.

Unga ‘tax’

The Finance Act 2019 controversially and outrageously re-categorizes the supply of both maize, cassava and wheat flour from zero-rated to exempt supplies.

Effectively, the maize milling firms will no longer be able to recoup their previously recoverable input value added tax (VAT) and this could effectively push up unga prices to a new ceiling

“Should we expect a rise in cost of flour?” tax analysts at KPMG pose.

Digital tax

The Finance Act further provides provisions for the taxing on income accrued from the digital market place.

However, the Act fails to provide for how the new tax is to be implemented and instead passes the buck to Treasury’s Cabinet Secretary to provide regulations to implement digital services tax.

The passage of the tax is rather premature given the non-existent framework for implementation.

Across the globe, countries are likewise still coming into grips with the approach of taxing the sector as wide consultations emerge including those on the definition of the digital market place and rules of origin.

Nevertheless, tax consultants welcome the introduction of the provisions on the industry observing the global trend towards roping revenues from online commerce.

“This is an opportunity for Kenya to consider its digital services tax regime, given the global interest in taxing this sector,” KPMG notes in its breakdown of the Finance Act.

Penalties

The raft of tax measures are targeted at raising an additional Ksh.37 billion in ordinary revenues as the country battles to solidify its domestic revenue mobilization efforts to offset the heavy deficit budget.

The Kenya Revenue Authority (KRA) is expected to raise its collections to Ksh.1.85 trillion, an equivalent 17.9 percent of Gross Domestic Product (GDP) by the end of June 2020 to plug the widened fiscal deficit from last year back onto the consolidation path.

To enhance compliance, the Finance Act, 2019 has rationalized tax procedures to provide for uniformed sanctions on non-compliant tax payers.

Failure to remit excise duties will now warrant a general penalty of Ksh.2 million or imprisonment for a term not exceeding two years.

Meanwhile, the Tax Procedures Act introduces a general and harmonized late payment penalty at the rate of five percent.