Ruto proposes tax on per diem allowances, wigs, eyebrows, eyelashes and artificial nails in the new finance bill
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Ruto proposes introduction of 5% tax on per diem allowances, wigs, false beards, eyebrows, eyelashes and artificial nails in the new finance bill
Ruto proposes introduction of 5% tax on per diem allowances, wigs, false beards, eyebrows, eyelashes and artificial nails in the new finance bill.
On May 4, the National Treasury proposed new taxes on a number of items, including per diem allowances, synthetic beards, and artificial nails.
According to Finance Bill 2023, Treasury Cabinet Secretary Njuguna Ndung’u proposed an amendment to Section 5 of the Income Tax Act to ensure employees’ per diem, known as cash allowances, were duly taxed.
With the new plan, the government will have a mandate to work with employers to create a system that ensures that workers pay their fair share.
“Where such an amount is received by an employee as payment of traveling allowance to perform official duties, the standard mileage rate approved by the Automobile Association of Kenya shall be deemed to be reimbursement of the amount so expended and shall be excluded in the calculation of the employee’s gains and profits,” CS Njuguna proposed.
Cash allowances paid to employees were previously not subject to income tax under the Pay-As-You-Earn (PAYE) system.
“One such instance is the amount paid to an employee when outside their usual place of work but on official duty, also known as per diem. In this case, the first KSh2,000 paid to an employee per day is not taxable. It is treated as reimbursement of expenses,” the government explained in the 2021 tax plan.
Finance Bill 2023 will require employers to deduct and remit income tax on cash allowances paid to their employees as part of the taxes that must be filed.
Cash allowances can be in the form of bonuses, commissions, or other payments made to employees in addition to their regular salary ranging from transport, housing, and hardship per diems.
The tax treatment of cash allowances depends on the nature of the per diem. For instance, transport allowances are taxable up to a certain limit set by the government, while housing and hardship are taxable in full.
The taxable amount is determined by subtracting any exempt amount from the total amount of the cash allowance. Employers are required to withhold the appropriate amount of tax from the cash allowance at the time of payment and remit it to the Kenya Revenue Authority (KRA) on a monthly basis.
Failure to deduct and remit the correct amount of tax can result in penalties and interest charges. It’s recommended that individuals seek the advice of a tax professional or consult the KRA website for more information on the tax treatment of cash allowances in Kenya.
Other Proposed Taxes
The Finance Bill 2023 also revised income tax, value-added tax (VAT), excise duty, customs and excise taxes, and property taxes.
Income tax: This is a tax on the income earned by individuals, partnerships, companies, and trusts. The tax rates for individuals range from 10 to 35 per cent depending on the income bracket, according to the Finance Bill 2023.
To this end, the National Treasury proposed an amendment to the Employment Act of 2007 to provide a 35 per cent income tax on all monthly salaries above Ksh500,000.
It, therefore, means that an individual earning Ksh500,000 per month will have to give the government a cool Ksh175,000 in income tax, that is, minus other taxes.
Njuguna also proposed a 3 per cent deduction of basic salaries towards the National Housing Development Fund, which employers will have to match with another 3 per cent.
Treasury proposed that those not eligible for the affordable housing programme will have to accrue their savings over seven years, after which their first deductions will be given to them or upon retirement, whichever comes first.
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Value-added tax (VAT): This is a tax on the value added to goods and services at each stage of production and distribution. The VAT rate in Kenya is currently 16 per cent.
“Where a bona fide owner of taxable supplies, who has deducted input tax under subsection (1), is compensated for the loss of the taxable supplies, the compensation shall be treated as a taxable supply, and if the compensation includes value-added tax, the compensation shall be declared, and the value-added tax thereon remitted to the Commissioner.
“If the compensation does not include value-added tax, the compensation shall be declared and subjected to value-added tax and the tax remitted to the Commissioner.
Excise duty: A tax on specific goods such as bear, tobacco, and petroleum products. The rate of excise duty varies depending on the type of product.
In this regard, the government will tax wigs, human hair, false beards, eyebrows and eyelashes at a 5 per cent excise duty.
Customs and excise taxes: These are taxes levied on imports and exports. The rates of customs and excise taxes vary depending on the type of goods.
Property taxes are taxes on the value of properties such as land and buildings. The property tax rate varies depending on the location and value of the property.
It’s important to note that there are other taxes, such as withholding tax, stamp duty, betting, gaming taxes and digital asset tax.
The property tax rate in Kenya ranges from 0.1 per cent to 0.4 per cent of the market value of the property, depending on the location and use of the property. For example, residential properties are generally taxed at a lower rate than commercial or industrial properties.
Property owners are required to pay the property tax on an annual basis, and failure to do so can result in penalties and interest charges. The county government may also take legal action to recover the unpaid taxes.
Digital assets like cryptocurrencies are subject to taxation under the Income Tax Act.
Treasury considers digital assets a property, and any gains realized from their sale, exchange or disposal are subject to capital gains tax (CGT).
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