As the clock ticks closer to September 1, the business landscape braces for the impact of the second round of taxes introduced through the much-debated Finance Act 2023. The ripple effects of these new measures are set to reverberate across various sectors, including cement, steel, paper, digital and creative industries, and entertainment.
Digital Assets Tax Takes Center Stage
Come Friday, September 1, the digital realm will undergo a transformation as a 3.0 percent tax will be levied on the sale of digital assets. Cryptocurrencies, content, music, ebooks, photos, videos, and more will all fall under the purview of this new tax, aptly named the Digital Assets Tax (DAT). This move is a strategic play by President William Ruto’s administration to tap into the digital economy, aiming to achieve the ambitious Sh2.7 trillion tax target for the fiscal year.
The wide-ranging definition of digital assets, encompassing even non-fungible tokens (NFTs), indicates the comprehensive reach of this tax measure, affecting both creators and consumers in the digital space.
Cost of Construction and Imports Surge
In a bid to safeguard the local industry, the Finance Act 2023 introduces a 17.5 percent Export and Investment Promotion Levy on imported clinker, a vital ingredient in cement production, and finished iron and steel. This move is likely to impact the cost of construction projects, leaving builders and contractors to navigate increased expenses.
Furthermore, imported paper, sacks, and bags will face a 10 percent export levy, further contributing to the shifts in pricing across the market. These measures aim to strengthen local industries and bolster the nation’s self-reliance.
Elevated Scrutiny with Electronic Tax Invoicing
Among the most significant changes is the enforcement of an electronic tax system, empowering the Kenya Revenue Authority (KRA) to closely monitor transactions and stock levels of companies. Businesses will be required to issue electronic tax invoices through the Electronic Tax Invoice Management Systems (eTIMS). Non-compliance with eTIMS will incur a steeper penalty, emphasizing the importance of aligning with this digital initiative.
Robert Waruiru, Chairperson of the Public Finance Committee at the Institute of Certified Public Accountants (ICPAK), emphasizes the significance: “Every business person has to be on eTIMS, and this is the data that KRA will be picking and analyzing in the determination of tax liabilities.”
Tax Relief and Legal Uncertainties
While these tax reforms pose challenges, there is a silver lining for some taxpayers. Those who fulfilled their tax liabilities by the end of December 2022 will enjoy full waivers on penalties and interests. Others who have paid part of the principal can enter into payment plans to settle the remaining balance by June 2024, offering some respite during these times of transition.
However, the implementation of the Finance Act 2023 remains subject to the Court of Appeal’s decision on its constitutionality, adding a layer of uncertainty to these tax measures.
As the calendar turns to September, businesses, consumers, and the nation as a whole brace for the impact of these tax changes, reshaping the economic landscape and the way various industries operate. With an eye on both opportunities and challenges, the business community readies itself to adapt to this new fiscal reality.
Photo Source: Google
By: Montel Kamau
Serrari Financial Analyst
31st August, 2023
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