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The Tax law changes in Kenya effective from January, 2017

Wednesday, 18 January 2017 00:00
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The Tax law changes in Kenya effective from January, 2017
By the Africa Legal Consulting Team

The Kenyan Finance Act, assented to on 13th September 2016 amended various sections of several acts relating to finance such as the Income Tax Act, Tax Procedures Act, Banking Act and The Kenya Deposit Insurance Act among others. The primary purpose of the act was to amend the law on taxes and duties in Kenya. Unlike majority of other acts of parliament, different sections of this act commenced on different dates. This article shall discuss the legislative changes effective from 1st January 2017 relating to tax laws.

Effective 1st January 2017, the personal tax relief was increased by 10% from the amount of KShs. 13,944 to KShs 15,360 while the Pay As You Earn (PAYE) tax brackets have also been expanded by 10%. This is via an amendment to the third schedule of the Income Tax Act. This was a long awaited revision considering that the figures had been constant for decades. However, the amendments do not reflect the inflation rates over the years.

The Act has further provided a tax incentive to persons venturing into the construction of low cost housing facilities by setting a corporate tax rate of 15% to companies which construct at least 400 residential units annually. This incentive further aims at realisation of the socio-economic right to housing enshrined in the Constitution. In addition to the above, the Income Tax Act was also amended to allow sponsors of sports a deduction of the expenditure while computing the taxable income.

Prior to commencement of the Finance Act, registration of tax agents pursuant to the provisions of the Tax Procedures Act, 2015 was done by the commissioner. However, this provision was amended and called for the composition of the Tax Agents Committee to recommend persons to be registered as tax agents. The Act further set time frames within which the commissioner should execute some of his duties. These include: where a tax payer requests for an extension of time within which to pay taxes due, the commissioner should respond within 30 days upon receipt of the application; when the tax payer requests for a refund of overpaid tax, the commissioner should respond within 90 days after the application is made; and where a tax agent files a notification of inability to pay tax, the commissioner is mandated to respond within 30 days.

The Finance Act thus limits the powers vested upon the Commissioner by the Tax Procedures Act. To this extent, it is geared towards protection of the tax payer’s interests who would fall victims to delayed replies by the commissioner or further have their applications for refund of overpaid tax struck out for being filed out of time. The Act remedies this by increasing the limitation of time within which a tax payer can apply for a refund of overpaid tax from 1 year to 5 years.

In addition to the above, the Finance Act incorporates a tax amnesty clause for taxable income earned outside Kenya on or before 31st December 2016 and bars the commissioner from assessing or recovering taxes, penalties or interests on such income. This is a smart move for the government because individuals who benefit from this clause will be liable to pay taxes in the subsequent years commencing January 2017.

Service charge below 10% of the total service value paid to a hotel in lieu of tips is not subject to VAT when it is distributed directly to employees pursuant to an amendment to Section 13(7) of the Value Added Tax (VAT) Act. This is also an incentive to persons in the hotel industry.

The Act also amended the Tax Appeals Tribunal Act, which establishes the tribunal mandated with the task of resolving disputes relating to tax. The Act sets the timelines within which the tribunal should conduct its hearings. For instance, the commissioner should serve the tax payer within two days after submission to the tribunal. Further, the tribunal is allowed to extend the time for filing a notice of a tax appeal where the delay is not inordinate. The Act also allows an appellant to appear through an advocate, who does not have to register as a tax agent. These changes are effective from 1st January 2017.

In case you need more information or advice on the above changes, please contact the Africa Legal Consulting team on .

Read 666 times Last modified on Wednesday, 18 January 2017 07:08

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