Finance act 2023

The Finance Act 2023 received Presidential assent on 26th June 2023. Most of the changes will be effective from 1st July 2023, which is the Government’s fiscal year, while a few will be effective from 1st September 2023 and 1st January 2024.  Some of the legislative highlights are as follows:

Housing Tax

Initially, the housing levy introduced by former president Uhuru Kenyatta’s government was set at 1.5% as a contribution. The proposed housing tax per the 2023 Bill proposal was a 3% deduction. However, the 2023 Finance Act sets it as a tax of 1.5% of the gross pay. It means that if an employee earns a gross pay of Ksh.30,000 monthly, they will contribute Ksh. 450 to the housing levy. But even with approval, the housing levy has been pushed to January 1st, 2024, for implementation, giving authorities time to develop a proper framework and legislation around it. 

VAT 

The proposed increase in Value Added Tax or VAT on fuel from 8% to 16% was signed into law. There was much controversy on the proposal as fuel prices in Kenya have remained significantly high since 2022. The new fuel VAT means employees will pay more for fueling cars while commuting to work. Similarly, businesses using petroleum products may face higher fees for the purchase. 

Corporate Tax

Beginning July 1st, 2023, businesses whose turnover is more than 25 million annually will be graduated into the corporate tax category, set at 30%. In the previous case, companies faced a turnover rate of 1%. It presently affects business owners but could see employees face financial challenges such as downsizing and salary cuts depending on how employers handle the situation. 

PAYE (Pay As You Earn)

The Finance Act 2023 has introduced a new Paye tax band of 32.5% for individuals earning a gross salary of Ksh.500,000 to Ksh. 800,000 monthly. Similarly, there is a new 35% band for gross pay above 800,000. For instance, if an individual earns a gross pay of Ksh.600,000, their PAYE deductions would be $195,000. Employees in this earning range will part with such amounts as the act takes effect on July 1st, 2023. 

Digital Creators Tax 

The proposed digital content creators’ tax was set at 15%, but the finance act set it at 5%. It means digital content creators will remit 5% of earnings from content creation using digital devices. The tax only applies to content creators

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