Kenyan Remote Workers, Online Companies Eyed In Revival Of Finance Bill 2024 Proposals
The Government has come up with new tax proposals after the seventh and eighth reviews on disbursement revealed that the Treasury fell short of its targets by Ksh34.3 billion.
Viral Tea Ke Writer 
The Ministry of Treasury and Economic Planning has proposed new tax reforms that will see the government concentrate on the online economy in a bid to mint more revenue. Treasury Cabinet Secretary (CS) John Mbadi, through the Tax Laws (Amendment) Bill, 2024, is lining up proposals aimed at expanding the definition of a digital marketplace as well as amending Section 3 of the Tax Income Act.
The new definition will include ride-hailing services, food delivery services, freelance services, and professional services, among others. This was one proposal that was fronted in the deleted Finance Bill 2024.
"The Bill seeks to amend Section 3 of the Income Tax Act in the definition of the digital marketplace by including ride-hailing services, food delivery services, freelance services, and professional services," said Mbadi in a press release.
In this move, the Treasury seeks to impose new taxes on income acquired over business done over the internet or an electronic network, a proposal viewed at bringing owners of these businesses into the tax net.
A person using an online taxi app. /FILE
The Government has come up with new tax proposals after the seventh and eighth reviews on disbursement revealed that the Treasury fell short of its targets by Ksh34.3 billion. In addition, the withdrawal of the Finance Bill 2024 which had sought to bring in proposals that were aimed at increasing revenue necessitated the fresh Amendment Bill.
The government is seeking to tap into the rapidly growing digital economy, which has become a significant contributor to Kenya's overall economic activity.
In Kenya, ride-hailing services- taxis, have an adoption rate of 46 per cent which is the third highest adoption rate in Africa. Bolt is the leading ride-hailing service provider in Kenya with Uber and Safeboda closing out the top three.
Food delivery services are another prominent fixture in the digital marketplace in Kenya. On a broader perspective, the online food delivery market in Africa is projected to reach USD 13.75 billion by 2024 with an annual growth rate of 12.66 per cent. In Kenya, apps like Glovo, Jumia Foods, and Uber Eats are the three big players in the market.
According to Statista, the revenue in the Online Food Delivery market in Kenya is projected to reach USD 436.20 million(Ksh56.2 billion) in 2024. This is expected to show an annual growth rate (CAGR 2024-2029) of 7.77 percent, resulting in a projected market volume of USD 634.10 million (Ksh81.7 billion) by 2029.
Freelance services have taken root in the country with a multitude of sectors countrywide breeding with freelancers who have been able to create income for themselves. With these tax proposals, the Treasury seeks to shine a light on the freelancing industry.
Make KRA PIN Mandatory for Kenyans working remotely
That's not all. Mbadi is also proposing to introduce a new tax policy that will see Kenyans working remotely outside Kenya register for a mandatory Kenya Revenue Authority (KRA) Personal Identification Number (PIN).
The Bill seeks to amend the First Schedule to the Tax Procedures Act, which provides for transactions that require a PIN to include registration of an employee working remotely outside Kenya for an employer in Kenya.
The Bill proposes that employees working remotely outside Kenya for an employer in Kenya should have a KRA PIN. This would mean that Kenyans abroad who happen to be working for firms in Kenya will still be liable to pay taxes to Kenya.
This means that although you are working remotely from a foreign nation, you will still need to have a registered KRA PIN that will see you pay your taxes to the Kenyan government, a proposal that works just like the Pay As You Earn (PAYE).
However, there is the worry of double taxation, where the employees would question if this means that they will be paying taxes to the foreign countries they live in, and their country of origin, Kenya, but a resolution for this would see Kenyan employers reach a consensus with the foreign nation and caution the employees from the worry of double taxation.
Here are other proposals the government is seeking to reintroduce from the Finance Bill 2024;
Minimum Top-Up Tax
The Tax Laws (Amendment) Bill, 2024 also seeks to introduce the minimum top-up tax. This is a new measure that will ensure multinational companies operating in Kenya pay a minimum tax rate of 15 per cent. The multinational companies must, however, have a consolidated annual turnover of Ksh100 billion.
Pension contributions to increase to Ksh30,000 monthly
The limit for pension contributions will be increased from Ksh240,000 per year to Ksh360,000. This translates to Ksh30,000 monthly for both the employee and the employer.
Introduction of withholding tax on goods supplied to public entities
The bill will also introduce a withholding tax on goods supplied to a public entity (such as a government office) at a rate of 0.5 per cent to a resident person and 5 per cent for non-resident.
The rates are, however, different from the repealed Finance Bill 2024, as it proposed a 3 per cent for resident persons. This means that if a resident individual sells goods worth Ksh100,000, they will pay Ksh500 as tax. On the other hand, a non-resident individual selling the same amount will remit Ks.5,000.
Economic Presence Tax
The bill further seeks to introduce the Significant Economic Presence Tax that will be subjected to non-resident people who earn an income from the digital marketplace. It will seek to replace the Digital Service Tax whose previous rate was 1.5 per cent. Now, digital operators will pay a tax rate of 6 per cent.
According to Mbadi, the taxation of digital services will align with international best practices.
Infrastructure bonds to be taxable
In the past, infrastructure bonds have attracted interest from investors due to their tax-free status. In the repealed Finance Bill, the government proposed to tax the interest earned from infrastructure bonds for resident persons as foreigners would continue to be exempt.
The new bill, however, proposes a 5 per cent tax rate from interest accrued from infrastructure bonds.
Affordable Housing, SHIF tax deductible
Contributions made to the Housing Levy and the Social Health Insurance Fund (SHIF) will now be tax deductible should the Tax Laws (Amendment) Bill, 2024 pass. Under the new bill, Kenyans will be entitled to insurance reliefs from both contributions hence reducing the amount taxable from one's income.
Mbadi's tax proposals will be presented to Parliament for debate and potential approval. They do run the risk of drawing fresh uproar from the public as new taxes would pile pressure on a population that is already struggling with the high cost of living, even though the State assured that it learnt its lesson from the Finance Bill 2024 and had insisted that the Bill had more to offer from Kenyans even though it was opposed due to widespread misinformation.
In addition to the Tax Laws (Amendment) Bill 2024, CS Mbadi has also introduced other legislative amendments, including the Tax Procedures (Amendment) Bill 2024 and the Public Finance (Amendment) Bill, as part of a broader effort to improve financial policy and accountability.
