New proposals for VAT changes in the Finance Bill 2024
The government release proposed adjustments to the Value Added Tax (VAT) regime in the Finance Bill 2024
The government release proposed adjustments to the Value Added Tax (VAT) regime in the Finance Bill 2024.
The proposed revisions aim to restructure Kenya’s VAT landscape, but they are expected to elicit varied reactions from stakeholders across industries.
Among the major changes are the elimination of VAT exclusions for specific financial services, improvements to VAT refund methods, changes to VAT registration criteria, and amendments to VAT exemptions impacting the tourism and insurance industries.
Here’s a breakdown of the main proposals and their possible implications:
1. Finance Bill 2024 proposes eliminating VAT exemptions for financial services.
The services include; credit and debit card issuance, telegraphic money transfer services, and cheque handling, processing, clearing, and settlement (including special clearance or cancellation).
Others include the issuance of securities for money, such as bills of exchange, promissory notes, money, and postal orders; the assignment of debt for compensation; and the provision of financial services on behalf of another on a commission basis.
However, critics believe that these revisions will increase consumer costs and complicate VAT administration for financial organizations.
2. Finance Bill 2024 proposes expanding the use of electronic tax invoicing.
This change aims to make VAT requirements consistent with existing tax legislation. If implemented, firms will be obliged to issue electronic tax invoices for transactions beginning July 1, 2024.
Analysts see this amendment as a step towards modernizing Kenya’s tax administration. However, certain organizations may have difficulty transitioning to electronic invoicing systems.
3. Modifications to VAT Refund Regime: The bill proposes changes to the VAT refund regime, including the treatment of excess input tax and the deadline for submitting refund claims.
While these modifications are intended to simplify the return procedure, there have been concerns voiced about their impact on businesses, particularly firms involved in government aid-funded projects.
4. The Finance Bill proposes increasing the required VAT registration level from KES 5,000,000 to KES 8,000,000.
This change intends to ease the compliance load on small enterprises.
However, other stakeholders feel that the revised threshold may still be insufficient, given Kenya’s inflation rate and economic conditions.
5. Proposed modifications exempt the transfer of business as a going concern from VAT.
While many people applaud this development, some are concerned about how it would affect suppliers’ input tax deductions.
6. Limitation of VAT Exemption on Insurance Services: The bill proposes restricting VAT exemptions for insurance and reinsurance services to premiums only.
This proposal has aroused constitutional issues since it may increase consumer costs and damage the competitiveness of the insurance industry.
7. Proposed revisions remove VAT exemptions aimed at strengthening the tourism sector.
Critics claim that these changes will inhibit investment in tourism infrastructure, stifling the sector’s expansion.
8. Conventional Rating of Betting, Gaming, and Lotteries Services: The Finance Bill 2024 proposes abolishing the VAT exemption for these services, subjecting them to the regular rate of 16%.
This decision has sparked debate within the gambling industry and among policymakers.
While proponents say that taxing these activities would create significant money for the government, there are questions about the actual application of VAT on betting and lottery transactions.
Specifically, it is unclear how VAT will be computed for such services, given that many betting organizations do not charge fees directly but instead generate revenue from wagers or stakes.
With a projected turnover of KES 50 billion in 2022 and around 170 registered enterprises in the sector, this plan has the potential to significantly impact the gaming industry.
Stakeholders are waiting for more information on the ramifications of these changes and how they may affect consumer behaviour and industry dynamics.
9. The Finance Bill proposes charging the usual VAT rate on locally built or produced mobile phones.
This plan comes at a time when Kenya is looking to strengthen its domestic manufacturing capabilities, notably in the technology sector.
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However, some experts believe that keeping the zero-rated status for domestically produced mobile phones would be more beneficial to encouraging investment and stimulating growth in the sector.
With Kenya’s recent announcement of its first phone assembly factory, stakeholders underline the need to keep incentives for local manufacturing to support innovation and competitiveness.
10. Finance Bill 2024 eliminates VAT exemption for taxable products provided to government contractors before April 25, 2020.
This plan has aroused worries regarding the government’s adherence to contractual responsibilities, as well as the potential impact on enterprises that operate under such agreements.
11. Removal of Zero-Rated Status for E-Mobility Sector Goods: The Bill proposes eliminating the zero-rated status for specific e-mobility goods, subjecting them to the ordinary VAT rate of 16%.
This plan concerns electric bicycles, solar and lithium-ion batteries, and electric buses.
These incentives, which were introduced in 2023 to encourage the use of green energy in the transportation industry, have helped to enhance the adoption of e-mobility solutions in Kenya.
However, the standard grading of these commodities may increase their costs and hinder the sector’s growth, providing hurdles for startups and firms functioning in this arena.
As discussions over the Finance Bill 2024 continue, players in the e-mobility sector push for policies that promote sustainable development and innovation while balancing fiscal concerns.
12. The Finance Bill proposes adjustments to the VAT status of different goods and services.
Items that were previously exempt from VAT will now be subject to standard-rated treatment, while others will remain tax-free.
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