Shocker awaits employees as government plans to backdate new taxes in the Finance Act
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Government plans to backdate new taxes in the Finance Act 2023 should court lift freeze order
Government plans to backdate new taxes in the Finance Act 2023 should court lift freeze order.
If the High Court lifts the freeze order, the Kenya Revenue Authority (KRA) has stated that it intends to backdate the taxes it hasn’t collected while the contentious Finance Act 2023 has been suspended.
This will be a double blow to paid workers who were exempt from the July deductions.
Following an appeal by Treasury Cabinet Secretary Njuguna Ndung’u to have the orders prohibiting implementation of the revenue-raising bill lifted, the Court of Appeal is anticipated to render its decision on Friday.
By lifting the orders, provisions such as the establishment of a housing tax deduction at 1.5 percent of gross salary matched by another 1.5 percent from the employer would now be implemented and applied.
These provisions had an implementation date of July 1, 2023.
“All officers are advised to read this circular and the specific provisions of Finance Act 2023. Further, officers are advised that the provisions of the Act shall come into effect on the dates specified in Section 1 of the Act. The Act provides the following effective dates July 1, 2023; September 1, 2023; and January 1st, 2024,” an internal memo circulated among KRA staff says.
Another provision that would present a shocker to Kenyan employees would be the introduction of the 32.5 percent tax rate for persons earning between Sh500,000 and Sh800,000 monthly and the 35.0 percent tax rate for persons earning above Sh800,000 monthly.
The KRA has asked its officials to have systems ready to effect the changes should the prevailing orders be lifted.
“The Finance Bill 2023 was assented into law on June 26, 2023. As you may be aware, the High Court issued orders on June 30, 2023, suspending the implementation of Finance Act 2023,” the internal memo says.
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“Until such orders are lifted or varied, we may not legally implement the contents of this Act. Subject to the directions of the courts, the ICT division should work closely with the revenue departments to ensure that the system is ready to support the implementation of the Act.”
The Federation of Kenya Employers (FKE) said that employers were processing July 2023 payrolls based on the provisions of the Finance Act of 2022 pending guidance from the courts.
“The conservatory orders mean that nothing changes for now. We manage payrolls and calculate statutory deductions as we have always done until and unless the courts rule otherwise,” FKE executive director Jacqueline Mugo said.
The High Court issued the orders barring implementation of the Finance Act 2023 on June 30 before asking Chief Justice Martha Koome to constitute a three-judge bench to hear the petition filed against the Kenya Kwanza government’s debut revenue-raising plan.
The Chief Justice has since constituted the bench comprising Justices David Majanja, Lawrence Mogambi and Christine Meoli to hear the petition.
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