Finance Act, 2022 Analysis - Kenya

The Finance Act, 2022 (the Act) was signed into law by the President on 21 June 2022, published on 23 June 2022 and gazetted on 08 July 2022.

The Act has introduced a number of changes that aim to raise additional revenues as well to align the tax legislation to the government development priorities.

A few examples include introduction of a lower tax rate of 15% in respect of a company operating a carbon market exchange or emission trading system that is certified by the Nairobi International Financial Centre Authority. The lower rate that will apply for the first ten years, dovetails with the recent launch of the Nairobi International Financial Centre (NIFC).

The Act has also introduced a number of changes designed to ensure equity in application of tax laws for entities in similar business by excluding from thin capitalization rules microfinance institutions licensed under Microfinance Act, entities licensed under the Hire Purchase Act; Nondeposit taking institutions involved in lending and leasing business, companies in the business of manufacturing human vaccines, holding companies regulated under Capital Markets Act and Companies engaged in manufacturing whose cumulative investment is at least five billion shillings where the investment is outside Nairobi or Mombasa County .

The Act also raised the Capital Gains Tax from 5% to 15%. This move is designed to align the Kenyan CGT rate with the regional CGT rates, despite stakeholders’ proposal to retain the same at 5% given the fact that significant portion of capital gains on disposal of properties is often attributable to inflation.

In a move to protect consumers from increase in prices due to annual inflation adjustments on excise duty of specified products, the Act has amended the Annual inflation adjustment provision to empower the Commissioner General to exempt specified products from inflation adjustment after considering the circumstances prevailing in the economy in that year in respect of such products.

The COVID-19 pandemic has impacted the Government’s ability to meet its expenditure requirements amid pressure for additional resources to service the current debt load. This informs the additional tax revenue mobilization measures contained in the Act, to finance the ambitious FY 2022/23 budget of KES 3.3 trillion.

We provide in the link below our analysis of the changes.