Tax Watch 2015

Introduction
Personal budgeting starts with an assessment of how much income one has. This determines how much one can spend, what expenses to prioritize and what to defer; this
allows someone to live within his/her means. Where credit is easily available, budgeting could vary because with a credit card, one can spend money which he/she does
not yet have, and repay later.
Government budgeting follows the credit card model. The government first determines what it needs to spend on; healthcare, education, security, infrastructure, social
investment, debt financing among others and then it embarks on developing fiscal proposals through which it expects to raise revenue to finance the expenditure.
Though government raises revenue through various ways, including co-pay for services such as health, stamp duty, licence fees and fines, etc. the biggest source of
government revenue across the world is tax. The government can only borrow so much without overcrowding the private sector in the debt market, so recourse to debt is
limited. Through the Budget proposals, the government outlines its policy objectives and how these objectives are to be financed through taxation. These taxation
proposals translate into specific amendments to revenue laws, which revenue authorities implement and enforce to collect tax. It is little wonder then that June is a critical
month for Kenya Governments fiscal calendar because not only does its financial year end in June; the tax proposals for the succeeding fiscal year are also set out in this
month.
On 11th June 2015 Henry K. Rotich Cabinet Secretary (CS) for National Treasury Republic of Kenya delivered the budget statement highlighting the budget policy and
revenue raising measures for the fiscal year 2015/2016.

The Key Highlights Were:

The CS tabled a 2.1 trillion Kenyan shilling national budget for the financial year 2015/2016 the largest in history.
Economic growth to accelerate to 7% in 2015/16, from 6.1% projection in 2014/15 and staying above that in the medium term, to be supported by conducive
business climate and investment in energy, transport, and agriculture.
Inflation to remain within single digit with upper limit target of 7.5% in 2015-16.
A budget deficit of 8.7% of GDP is projected for 2015/16, declining to 4.0% in the medium term.
Public debt to GDP ratio to decline from 46.1% at the end of June 2015 to 43.3% in 2017/18.
Tax revenue for 2015/16 expected to be Ksh 1,358.0 billion up from Ksh 1,164.6 billion in 2014/15.
National government expenditure on travel, hospitality, advertisement, transfers to semi-autonomous agencies, and other administrative payments to decline as
share of spending

Government Spending Plans 2015/16 BUDGET HIGHLIGHTS

Source: National Treasury

In order to finance the budget, the CS highlighted various tax proposals and other measures to be included in the 2015 Finance
Bill as follows:-

i)

Measures to facilitate Private Sector Growth and accelerate industrialization

and the creation of Jobs
Tax rebate scheme for employers who shall engage and train at least ten fresh
graduates for a period of six to twelve months.
Importation of nylon yarn and synthetic twine used in the manufacture of fishing nets
be under the duty remission scheme at a rate of 0% instead of 10%. Also the
importation of made up fishing nets to attract duty at a rate of 25% instead of 10% to
protect local manufacturers of fishing nets.
Increase the specific duty rate on imported sugar from USD 200 to USD 460 per
metric tonne. The advalorem rate remains 100% of the customs value.
Withdraw the stay of application of Common External Tariff on paper and
paperboard products and make them subject to duty at 10% according to the Common
External Tariff.
Proposal to harmonize the export duty rate on hides and skins at 80% of FOB value or 0.52 USD per kg, whichever
is higher. This is meant to curb smuggling of these products.
Increase in the import duty rate on plastic tubes for packing toothpaste and cosmetics from 10% to 25% in order to
protect our local manufacturers
Importation of SEMOLINA, the raw material for making pasta, under the EAC duty remission scheme at a rate of
0% instead of 25% for gazetted manufacturers of pasta.
The proposed Excise Bill grants the Cabinet Secretary, National Treasury to grant remission of excise duty in
respect of beer or wine made from sorghum, millet or cassava or any other agricultural products (excluding barley)
that is grown in Kenya.
Currently, imported aluminium milk cans are taxed at 10%. In order to encourage increased local production, the

bill proposes to import aluminum milk cans at 25% instead of 10%.

Increase in Road Maintenance Levy to be collected and paid into the Road Annuity Fund. The bill proposes to increase fuel levy by Kshs 3 per litre of
fuel in a bid to raise funds for the roads annuity fund for the maintenance of roads. This shall consequently lead to the rise of fuel levy from the
current Kshs 9 per litre to Kshs 12. Measures are also being put in place in the tax regime of the old imported vehicles so as to help in the
conservation of the environment.
Increase in tax of imported gas cylinders at a rate of 25% instead of 0% to protect local manufacturers of cylinders.
Plastic bag biogas digesters are proposed to be exempt from VAT.
Zero rate services in respect of goods in transit. This will go a long away in helping clearing and forwarding agents in claiming all the input VAT
incurred as in the old regime, these services were exempt.
Exempt from VAT taxable goods and services for use in the construction of infrastructure works in industrial and recreational parks of 100 acres or
more.
Inputs imported or purchased locally for the assembly of electronic devises be exempted from VAT.
Import Declaration Fee (IDF) be lowered from the rate of 2.25 percent to 2.0 percent.

Source: National Treasury

ii) Measures to Promote Equity and Fairness

In order to equip the prisons and ensure criminals are secured away from the society, the CS
proposed to include the prisons authority in the exemption schedule to enable them import for their
official use, duty free goods, materials, equipment and other supplies.
The CS proposed to amend the VAT law to allow such returning residents who have owned the left
hand drive motor vehicle for at least twelve months to sell the motor vehicle and import VAT and
duty free a right hand motor vehicle of equivalent value subject to specified conditions.
The CS proposed adjustments to taxation of rental income. Currently rental income is treated as any
other source of income with allowable expenses being deducted in arriving at the taxable income or
where these costs could not be easily ascertained, one fifth of the revenue was assumed to be the cost
incurred in generating rental income. The new proposal is that 12% tax be levied on the gross rental
income received by a landlord whose gross rental income is below Kshs.10m. The CS further
proposes tax amnesty for land lords who have not fully declared rent or are outside the tax net. In
this respect, the land lords with tax arrears are advised to prepare to engage the Kenya Revenue
Authority (KRA) to clean their tax records.
The CS proposed to re-introduce a simplifying gaming tax, which shall be a direct charge on the
gross gaming revenue. He also proposed to tax public lotteries at 5 percent of the lottery turnover,
and tax bookmakers at 7.5 percent of the gross betting revenues. All prize competition whose costs
of entry are premium shall be taxable at 15 percent of the total gross revenue.

iii) Measures to Deepen Tax Administration Reforms, Ease Compliance

and reduce the cost of doing business.
The CS proposed introduction of a Tax Procedure Bill which will contain uniform
procedures across the three tax legislationsValue Added Tax, Excise Duty and
Income Tax. The Bill is aimed at simplifying tax administration, which at the same
time will reduce the cost of compliance.
VAT refund claims to be lodged within 12 months from the date the tax became due
and payable.
The CS proposed to amend the Income Tax Act to harmonies tax treatment in
Petroleum and the Mining Sectors at the withholding tax rate of 12.5 percent and 5.6
percent for training and contractual services respectively.
Capital Gains Tax (CGT) came into effect as from 1st January 2015 to help the
Government collect more than Kshs 1.1 trillion it needed to finance 2014/2015 budget. The tax was to be levied at five per cent of the gains made by trading in shares,
selling properties or in bonds. The tax was to be paid by person (s) (resident or non-resident) transferring property that is the transferor. The tax applies even where the
property, shares or bonds exchange hands as a gift or in case of a loss, insurance steps in to compensate. In the new proposal, it is proposed to remove the 5 percent tax on
capital gains arising from sale of shares and introduce a 0.3 percent withholding tax on the transaction value of the shares
Shipping investment deduction was initially allowed at 40% in the year of purchase and 10% in subsequent 6 years to make it 100% on the acquisition of a ship of at least
495 tones. The new bill proposes a reduction of tonnage from 495 to 125 tones and also enhances the rate from 40% in year 1 to 100%.
The Finance Act 2010 brought changes to the Income Tax Act requiring that all accumulated tax losses as from 2010 can only be used in the year of income in which they
arise and 4 subsequent years unless the period is extended by the Cabinet Secretary on the recommendation of the Commissioner. The CS proposes to extend this period to
ten years considering that there is heavy investment expenditure by some power producers, manufacturers and hotel operators.

iv) Proposed Measures to Encourage Growth and Stability of the Financial Sector.
The CS proposed to increase the minimum core capital requirement for banks,
mortgage finance companies and insurance companies. For banks, He
proposed to increase the minimum core capital progressively from the current
KSh 1.0 billion to Ksh 5.0 billion by December 2018. For insurance
companies, to increase the minimum capital to KSh 600 million for general
insurance, and KSh 400 million for long term insurance business by June
2018. For the insurance industry, in addition to increasing the minimum
capital requirements, the CS proposed to introduce risk based capital
requirements to be determined by the specific risk profile of the company.
The CS proposed to remove the requirement for annual licensing of banks and instead empower the Central
Bank of Kenya to issue non-renewable perpetual licences.
It is proposed to exempt asset transfers and other transactions related to the transfer of assets into REITs and
ABS from stamp duty and to create a new category in the Retirement Benefits Investment guidelines to
allow schemes to invest upto 10 percent of their assets in private equity funds and venture capital funds
licensed by the Capital Markets Authority. However, the bill proposes to introduce in all classes of assets,
except government securities, a per issue limit of 15 percent of assets and per issuer limit of 15 percent of
issue in order to mitigate potential risks.
To improve governance of retirement benefits schemes, CS proposes to introduce term limits such that trustees can only serve a maximum of two
terms of three years and also proposed to reduce the period for preparation of annual audited accounts for retirement benefits schemes from 6
months to 3 months to ensure expeditious accountability to members.

The measures are to be implemented once the Finance Bill 2015 is enacted and passed into Law as stipulated by the Kenyan
Constitution.
i-TAX
I-Tax is an Integrated Taxation Management System automated with computer system.
The Kenya Revenue Authority (KRA) started rolling out an online system on June 2013 for the
administration of domestic taxes in a bid to expand its revenue collection. With this new system,
Kenyans will be able to register, file returns, make payments and enquire about our tax status, while
monitoring their accounts in real time 24hours a day, from the comfort of wherever they are with
internet. Tax payers will be able to file tax returns online by downloading the return forms, filling
them and uploading them whenever they wish.
The expectation is that through this system, tax compliance will be simple, quick and secure exercise,
thus bring down the cost of tax compliance in logistics. It will also help out in reducing interaction
between KRA staff and taxpayers thus eliminating cases of bribery claims.
You can access the iPage on iTax portal through: www.kra.go.ke

Tax Training
We conduct in house training to equip participants with practical skills on tax
compliance, management and planning. Including the related accounting
techniques. Our course simplifies the huge web usually associated with taxation.
Our courses are based on the overall message that you can comply with tax laws
and be happy about it. (To arrange and discuss training details contact us on the
addresses provided.)

Our goal is to take the mystery out of investing, managing risk, preparing for new
tax requirements, and preserving your wealth. We help you to acquire the
information you need to pursue your financial objectives and thus, hope to
establish long and trusted relationships.
For further information on the above budget & tax watch, as well as other
matters regarding taxation, kindly contact our Tax Partner on the following
contacts.
www.kkcoeastafrica.com
Email Addresses: audit@kkcoeastafrica.com or
consulting@kkcoeastafrica.com

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DISCLAIMER
The data contained in this Budget tax watch is based on our knowledge, understanding and interpretation
of current laws and practices. Whilst reasonable efforts and care has been exercised in ensuring the
accuracy and completeness of the information, we will not accept any liability for any errors or omissions
contained herein whether caused by negligence or otherwise, or for any loss, however caused or sustained
by anyone who places reliance on the contents.
The information contained herein is for guidance only and should not be used as a basis of decision-making
without appropriate legal and professional advice.