Finance Act 2023: List Of New Taxes That Will Take Effect In January

• President William Ruto officially assented to the Finance Act 2023, on June 26, 2023, introducing a raft of taxes that hit Kenyans hard
• Landlords and landladies have a reason to smile after the government reduced the residential income tax from 10% to 7.5%
• Another law effected on January 1 was the advance tax rate applicable to vans, pick-ups, trucks and other vehicles

TUKO.co.ke journalist Japhet Ruto brings over eight years of experience in financial, business, and technology reporting, offering deep insights into Kenyan and global economic trends.

Beginning January 1, the last set of laws outlined in the Finance Act 2023 were implemented.

President William Ruto officially assented to the act on June 26, 2023, and it was officially published in the Kenya Gazette on June 27, 2023.

Most tax-related adjustments became effective from July 1, 2023, including the controversial housing levy. Other tax laws came into effect on September 1.

The following are the highlights effective January 1 per the Kenya Revenue Authority.

Which tax laws came into effect on January 1?

1. Annual advance tax rate for vehicles

One of the taxes effected on January 1 was the advance tax rate applicable to vans, pick-ups, trucks, prime movers, trailers, and lorries.

The tax saw an increase from the existing rate of KSh 1,500 per tonne of load capacity to KSh 2,500 or KSh 5,000 per annum, whichever is higher.

However, agricultural machinery will be exempted from the tax.

Small cars, such as saloons, will also pay a monthly tax of KSh 160 per passenger or KSh 5,000 annually from the current KSh 2,400.

2. Residential income tax

Landlords and landladies have a reason to smile after the government reduced the residential income tax from 10% to 7.5%.

However, the National Treasury plans to harmonise the rental income tax rate with the corporate income tax rate to facilitate compliance.

The exchequer disclosed it lost KSh 27 billion due to non-compliance in residential tax remittance.

3. Medical post-retirement relief

The medical post-retirement relief was enacted following amendments to Section 31 A of the Income Tax Act providing for tax relief for expenses incurred toward post-retirement medical fund.

"A resident individual who proves that in a year of income, a person has contributed to a post-retirement medical fund shall for that year of income be entitled to a personal relief in this Act referred to as post-retirement medical fund relief,” it states.

Retirees will be entitled to 15% of the amount contributed towards their medical fund or KSh 60,000 (KSh 5,000 monthly), whichever is lower.

4. Corporate tax on companies manufacturing vaccines

The corporate tax on companies manufacturing human vaccines has been slashed from 30% to 10%.

The initiative was designed to promote the domestic production of vaccines in Kenya.

It stems from the agreement made in March 2023, where Kenya finalised a deal with Moderna to set up a manufacturing facility.

5. Taxation of repatriated income for non-residents

It introduces a new tax on income repatriated by non-residents with a permanent establishment in Kenya, imposing a rate of 15%.

It also lowered their Corporate Income Tax (CIT) rate from 37.5% to 30%.

6. Interest on mortgages

The claims on mortgage interest expense have been slashed.

Individuals can now seek reimbursement for mortgage interest expenses, limited to a maximum of KSh 300,000 annually, accrued from funds borrowed from a cooperative society.

7. Filing of income tax returns

KRA noted that any expenditure or loss shall not be deductible if the invoices of the transactions are not generated from electronic tax invoicing management (eTIMS).

All businesses are supposed to have integrated eTIMS into their invoice generation systems and sales.

Businesses must ensure their suppliers are also integrated on eTIMS so that their expenses are exempt from taxes.

8. Withholding tax on immovable property

This has been slashed from 10% to 7.5%.

Why govt will introduce more taxes

At the same time, the government announced plans to widen the tax base and increase revenue for its bottom-up economic agenda.

The National Treasury released the medium-term revenue strategy for the fiscal years 2024/25 and 2026/27, which is aimed at enhancing domestic revenue.

Treasury CS Njuguna Ndung'u said the proposals aimed to review existing income tax and introduce new taxes to seal the gap in revenue collection.

He said sectors like agriculture were undertaxed, proposing the introduction of a 5% withholding tax on farm produce.