Kenya Finance Bill, 2024 Analysis

The theme of the 2024 Budget Policy Statement (BPS) is "Sustaining Bottom-Up Economic Transformation Agenda for Economic Recovery and Improved Livelihoods." The BPS, which is the second under the Kenya Kwanza Administration, focuses on supporting the Bottom-Up Economic Transformation Agenda (BETA) and aligns with Kenya’s Vision 2030's Fourth Medium-Term Plan.

At a macro-economic level, Kenya’s economy has demonstrated resilience, growing by 5.6% in the first three quarters of 2023, exceeding global and regional averages. The projected growth for 2023 and 2024 is 5.5%, driven by private sector growth, service sectors, agriculture, and policy measures supporting BETA.

Following the review of the 2024/25 BPS, the Budget and Appropriations Committee approved expenditure of KES 3.914 trillion. The estimated revenues from taxes is expected to be KES 3.354 trillion, made up of ordinary revenues of KES 2.913 trillion and appropriations-in-aid of KES 441 billion.

Further, the projected fiscal deficit will be KES 703.9 billion which is the difference between total revenues and grants and total expenditure and net lending. This fiscal deficit represents 3.9% of Gross Domestic Product (GDP).

A key facet in mobilizing revenue was the formulation and publication of the Medium-Term Revenue Strategy (MTRS). The primary aim of the MTRS was to provide a framework for tax systems reforms aimed at boosting domestic revenue, which had been declining over time.

The current MTRS, which runs for a period of three fiscal years i.e., FY 2024/25 to FY 2026/27 aims to grow the tax to GDP ratio from 14.1% to 20% within this time frame.

The MTRS provides a raft of proposed tax changes that are aimed at achieving the target set in the MTRS. Given this context, the government introduced the Finance Bill, 2024 (the Bill), which proposes significant changes to the tax framework. Some of these changes are in line with the tax reforms proposed in the MTRS.

Notable among these proposals is the introduction of a contentious motor vehicle tax set at a rate of 2.5% of the value of the vehicle, with a floor of KES 5,000and ceiling of KES 100,000.

Another key change entails extending the time frame for the Kenya Revenue Authority to issue decisions from 60 to 90 days.

Further, there is a proposal to increase the VAT registration threshold for taxpayers making taxable supplies from KES 5 millionto KES 8 million.

On the international tax front, the Bill suggests implementing a minimum top-up tax of 15%, mirroring the Inclusive Framework Pillar Two proposal. This provision applies to resident persons or entities with a permanent establishment in Kenya that are part of a multinational group with a consolidated annual turnover of EUR 750 million (approximately KES 108 billion) in at least two of the previous four years preceding the first year of income.

Please see below the link to our detailed analysis of the proposed changes contained in the Finance Bill, 2024.