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Kenya's budget has been presented to parliament and some of the proposals contained in it are most likely going to affect the investment environment in Kenya

Source: Salihiya Cargo

The 5 Kenya’s Budget 2018/2019 proposals to hurt investors

Kenya's budget has been presented to parliament and some of the proposals contained in it are most likely going to affect the investment environment in Kenya

by Kimani Chege
June 15, 2018
in Kenya
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The budgetary estimates of the 2018/2019 have now been released to the Kenyan Parliament to be debated and considered for approval. While it is the norm that most elements are approved, there is a growing murmur on what need to be reconsidered. We provide a list of losers of the estimates

Sea freight

Demurrage charges paid to non-resident ship operators will now be subject to withholding tax at the rate of 20%
on the gross amount. This is the charge given to ships who fail to offload their cargo within the stipulated time. Experts at PwC fear that this charge will not fall into the foreign operators and is likely to be passed to the local subsidiaries. This will only work to increase the cost of freight and eventually the cost of goods being shipped to Kenya.

High earning corporates

For companies with an annual taxable income exceeding KES 500 million the CS has agreed to retain the Income Tax Amendment Bill (ITB) that is undergoing the legislative processes at the higher rate of 35%. This is seen as a negative move as it the opposite of what is going in most OECD countries where income tax has been declining.

Foreign Insurance targeted
Withholding tax at a rate of 5% on insurance premiums payable to non-residents has also been introduced into the Finance Bill. PWC analysis notes,  “This taxation measure is likely to increase the cost of insuring certain risk overseas, as foreign insurers or re-insurers are unlikely to accept this tax as they have no taxable presence in Kenya, leaving Kenyan customers to bear the tax cost.” This will only increase the cost of insuring certain specialized risks that cannot be insured in Kenya.

Inter-bank Money transfer

The government has proposed to raise the tax on any bank transfer of Ksh 500,000 and above by slapping an excise duty of 0.05 percent. The CS labelled this as Robin Hood Tax, in that the government is meant to earn a little share from any money transferred. This will only make money movement from one point to another a little more costlier. This legislative should be viewed with other Central Bank of Kenya guidelines issued to banks like the maximum payable by cheque which stands at Ksh 1 million as well as controlled deposit and withdrawal of large sums meant to contain fraud.

More VAT remission for oil exploration companies

Remission of VAT on services purchased by oil exploration companies granted under the repealed VAT Act will lapse on 1 September 2018. These supplies will thereafter be subject to VAT at the standard rate, 16%. PWC notes that based on the fact that oil exploration companies require huge investments, taxing services supplied to companies engaged in oil exploration or oil prospecting will lead to increased exploration costs for the companies and by extension to the Government of Kenya.

Read also: Extend tax amnesty for Kenyans with cash abroad, government told

Tags: Central Bank of KenyaCS Henry RotichKenya Budget 2018/2019PwC Kenya

STATE OF ECONOMY - GET THE REPORT

ASSESSING EAST AFRICA

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Kimani Chege

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