|BY David Indeje
The National Treasury has ordered the tax and duty-related provisions of the Finance, Bill 2017 into effect even before the Bill passes into Law.
This order became effective last week and will see excise stamp fees paid on cigarettes and alcoholic beverages with more than 10.0 per cent alcohol content increase to Sh2.8 per retail unit from Sh1.5 previously.
However, “this move will have minimal effect on inflation as alcoholic beverages, tobacco and narcotics only bear a 2.1 per cent weighting on the Consumer Price Index’ (CPI’s) and will lead to minimal increase in revenue for the exchequer as the bulk of tax collection comes from PAYE and VAT at 43.4 per cent and 22.3 per cent, respectively, whose changes were to increase the tax brackets hence lesser collections,” according to the Cytonn Investments’ team.
Contrary to this, excise stamp fees on non-alcoholic beverages, mineral water and cosmetics have practically been halved, reducing to Sh0.6, Sh0.5 and Sh0.6 per retail unit, respectively.
Keeping in mind that non-alcoholic beverages are consumed by a larger population and at a higher frequency than alcoholic beverages (above 10.0 per cent alcohol content), the net effect of these changes would be a tax cut on beverages in general.
“This move will likely result in alcoholic beverage manufacturers and retailers passing on the extra costs to the consumer, leading to an increase in prices of these wines and spirits,” they add.
The Finance Bill 2017 (the Bill) has subsequently been published, pending tabling before the National Assembly for debate and approval.
It is expected that the Bill will be enacted into law later in the year, although pursuant to the Provisional Collection of Taxes and Duties Act, the Bill has effect on the effective dates specified in the Bill as if the Bill were passed into law.
Other changes that have been effected in the Bill include: One, the Transfer pricing on domestic transactions relating to SEZ, EPZ and related enterprises, which became effective on April 3. Domestic transactions between related entities are not subject to transfer pricing regulations.
The Government has now proposed to bring certain transactions involving domestic companies in preferential tax areas within the ambit of transfer pricing.
The Bill introduces a new section 18A to the ITA that brings in a requirement for transactions between an entity in a preferential tax regime and related resident entity outside the preferential tax regime to be based on “arm’s length’’ prices.
Two, increased scope for tax allowable donations. Under the ITA, cash donations are only tax deductible when made to recipients with a current tax exempt status, and subject to fulfilling certain requirements.
In order to encourage contribution by the private sector during national disasters, the Bill introduces a new section 15(2) (aa) to the ITA, which grants an allowable deduction for expenditure on donations for alleviation of distress during national disasters, provided such donations are channeled through the Kenya Red Cross, the County Governments or any other institution responsible for the management of national disasters declared as such by the President.
Three, the Bill proposes an amendment to section 7 of the TPA to empower KRA officers to initiate prosecution and produce seized evidence in the Tax Appeals Tribunal or Court of Law.
However, analysts fault the move: “While this could be effective from the KRA’s perspective, it would lead to a conflict of interest as the KRA cannot be both a party to a High Court matter and at the same time the prosecutor.”
In the current fiscal year 2016/2017, the Finance Act 2016 introduced a provision in the Tax Procedures Act granting tax amnesty to the taxpayers who earn taxable income from foreign sources.
The Amnesty gives the right to taxpayers to declare their foreign income in respect of any year ending on or before December 31, 2016.
However, it is uncertain now that the Treasury Cabinet Secretary Henry Rotich has proposed to extend the tax amnesty by six months from December 31, 2017 to June 30, 2018.
“Physical repatriation of assets is a complicated area and the Government should provide further guidance on this matter, especially noting that Kenya does not have a foreign exchange control regime which would prevent transfer of funds out of the Country,” According to
Grant Thornton says, “The Amnesty is a timely development in light of Kenya having agreed to participate in the Common Reporting Standards (CRS) regime CRS is a global initiative developed by the OECD to enhance tax transparency and compliance across more than 47 countries including tax havens such as British Virgin Islands, Mauritius and Jersey.”
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