KENYAN GOVERNMENT APPROVES THE FINANCE ACT 2019 LIFTING THE INTEREST RATE CAP MAKING KENYA AN INVESTMENT JURISDICTION IN THE FINANCIAL INDUSTRY IN AFRICA

In order to amend the existing  tax laws and fiscal policies,  the parliament of Kenya has  passed the Finance Act 2019 affecting various  key tax provisions. Below are the major main changes that might affect entities operating in Kenya and their international parties;

Interest Rate Capping Law

 

The Finance Act has  lifted the interest rate cap by amending Section 33B of the Banking Act that previously  limited financial institutions to set  a maximum interest rate chargeable at no more than 4% of the prescribed rate by the CBK.

With the repeal  of this interest rate cap, micro, small and medium sized  enterprises will have easy  access to credit facilities. As a result, the share price for the financial industry  is expected to rise.

Taxation of Digital Economy

The Finance Act has  amended the Income  Tax Act by subjecting any income that is accrued through a digital market place  will now be subject to income tax. The Finance Act amends the VAT Act further  by subjecting any supplies made through a digital market place  to Value Added Tax (VAT).

This is bound  to affect the many entities whose main business transactions are carried out in the digital market place. We are currently looking forward  to the regulations that will be issued by the Cabinet  Secretary for National  treasury will give clarity on the mechanism that will be adopted in taxing of the digital economy. It is our hope  that the regulations will align with the international best practice on digital economy by including measures proposed under  the OECD Base  Erosion profit Shifting (BEPS) framework.

Thin Capitalization

In order to enhance the government’s Big Four Agendas, any foreign controlling companies that will implement projects under  the Affordable Housing Scheme, upon recommendation by the CS for housing, will now be exempt from thin capitalization.

This provision  is bound  to benefit  foreign investors considering that the companies that implement affordable housing projects are most likely to be highly geared due to their capital intensive nature.

 

Plastic Recycling Plant

The Finance Act provides that companies operating plastic recycling  plant will be subject to 15% corporate tax for the first five years  of operations. This is effective starting January 1, 2020

The Finance Act also  exempts plant and machinery for a plastic recycling  plant from Value Added tax (VAT). This complements the move by Kenyan government in banning plastic bags and conservation of environment. The beneficiaries of this provision  also  include  the foreign investors establishing and operating plastic waste management companies in the country.



Official Aid Funded Projects

The Finance Act has  amended the Vat Act and Excise Duty Act by clarifying the word concession for the purposes of an official aid funded project. An official aid funded project  is a project  that is funded by a concessional loan in accordance with an agreement between the government and any foreign government agency, institution, foundation, organization or any other aid funded agency. A concession loan is defined  as a loan with at least 25 per cent  grant  element

With regards to this definition, the Finance Act now gives more clarity on what should constitute concessional loans  for purposes of exemption from tax granted to aid funded projects. Goods and services purchased under  official aid funded projects are exempt from VAT, Excise Duty, Import Declaration Fees  and Railway Development Levy.

VAT on Imported Services

According  to the Finance Act 2019, any person shall be liable to account for import VAT on importation of taxable services to Kenya whether or not they are registered for VAT or not. Initial, only registered individuals  would be imposed with VAT liability on imported services.



ronalds LLP for Audit Tax Advisory

Erastors Chogo

website:www.ronalds.co.ke/
tax@ronalds.co.ke

Disclaimer: The content herein this newsletter is intended to be of general use  only and does not constitute professional advice.  Ronalds LLP accepts no liability rising from anyone depending on this content for their actions without seeking appropriate professional advice.

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