FINANCE ACT 2019
On 7th November 2019, the Finance Act 2019 was assented to by the President. The Law interalia introduced the following:
- Policy and Taxation Measures to support Government Expenditure and more so the Big Four (4) Agenda
- Removal of Cap on Interest Rates
- Reintroduction of Turn Over Tax
- Taxation on Digital Economy
- Increase in Levies and Fees such as Railway Development Levy and Import Declaration Fees
- Excise Duty Changes
- Reduction of Withholding VAT Rate
- VAT Changes
The Finance Act 2019 has predominantly increased the Tax base, therefore, increasing the tax burden on the common mwananchi and business operations.
What do you need to know?
Policy and Taxation Measures to support Government Expenditure
The Act is focused in helping the Affordable Housing Agenda and it has done so by:
- Exempting Construction Materials for the use in the construction of houses under the affordable scheme from VAT, this is subject to approval from the Cabinet Secretary for Finance.
- Exemption from Stamp Duty on transfer for houses constructed under the Affordable Housing Scheme from Developers to the National Housing Corporation.
- First time homeowners will be exempted from income tax on withdrawals from the National Housing Development Fund (NHDF) to purchase a home.
- Import Declaration Fee (IDF) on inputs for the construction of houses under the Affordable Housing Scheme has been reduced from 2% to 1.5%.
Removal of Cap on Interest Rates.
Previously the Cap on Interest Rates was Central Bank Rate + 4% but with the coming into effect of the Finance Act, 2019, Section 33B was repealed to remove the cap on interest charged by Banks on loans.
The effect of this is that Banks will now be able to set interests on both new and existing loans without interest restrictions.
Reintroduction of the Turnover Tax
Turnover Tax will be levied at 3% of the gross income of businesses whose annual turnover is less than Five (5) Million Shillings. This will be remitted on a monthly basis.
Taxation on Digital Economy
Over the last couple of years, we have seen an increase in e-commerce and the use of Social Media Networks such as Instagram and Facebook by business to market and sell their products. The Finance Act, 2019 has amended both the Income Tax Act and the VAT Act to broaden the scope of VAT and Income Tax in the digital space.
Increase in Levies and Fees
Railway Development Levy has increased from 1.5% to 2% while the Import Declaration Fee has increased from 2% to 3.5% on all imported goods except for raw materials and intermediate goods.
Further to that Import Declaration Fee on raw materials and Intermediate Goods from approved manufacturers has been reduced from 2% to 1.5%.
Excise Duty Changes
Excise Duty on Motor Vehicle Importation has changed in the following ways:
- Excise Duty on Vehicles exceeding 1500cc has gone up from 20% to 25%
- Excise Duty on Diesel Vehicles exceeding 1500cc has gone up from 20% to 35%
- Excise Duty on 100% Electric Vehicles has been reduced from 20% to 10%.
- Excise Duty on Betting and Gaming will be charged at 20% of amounts waged.
Reduction of Withholding VAT Rate
Withholding VAT Rate has been reduced from 6% to 2%. This is to help reduce the refunds that arise from Withholding VAT.
- Zero Rating of Agricultural Pesticides.
- Zero Rating of Propane
- Exemption from VAT on Solar Equipment, this is however subject to approval of Cabinet Secretary Energy.
- The Act now defines concessional loans to mean loans given for purposes of funding projects with at least 25% as a grant. Supplies made for such aid are now exempt from Stamp Duty.
The Finance Act 2019 has predominantly increased the Tax base, therefore, increasing the tax burden on the common