2017 Budget

Highlights and
Analysis
Key themes of the Budget 2017
Nairobi
International
Grow the Export and Finance
Automotive Prosper Centre
sector Local
Recognition Manufacturing
of Islamic and Assembling
finance

Heavy tax on
Lower gambling and
corporate hard liquor
tax rates in
strategic
areas Invest in Security and Strengthen
Invite investment in Healthcare
Tourism and by inviting
Hospitality FDI
BUDGET 2017 - TAX HIGHLIGHTS – Summary of direction

Re-Alignment  Policy moves to strengthen exports and

Unpredictable
to Industry country’s flagship industry’s earnings
tax regime  Tax amnesty implementation guidelines yet to
focus
be clear
 I-Tax has eliminated manual interventions in
Drive to
Low tax payer return submission and tax payment process which
expand the has reduced business time on routine tax
base
taxpayer base compliance
 The unified tax law for tax administration,
Weak Leveraging compliance, collection & recovery for all tax laws
legislation and technology and in Kenya will boost the doing business
inefficient tax convenience in Kenya
strenghthened  Rehauled Income Tax Act and VAT Regulations
administration legislation expected in 2017
Income and Asset Disclosure Scheme – Tax Amnesty
• Implementation guidelines not clear: KRA has been directed to issue clear
guidelines and clarify circumstances under which amnesty can be granted
• KRA needs to clarify the difference between “Income Earned outside Kenya”
Vis-à-vis “Income Received outside Kenya” in their guidelines to avoid
misinterpretations by taxpayers
• Finance Bill 2017 has extended the timelines for submission of Amnesty
returns to 30 June 2018
• KRA needs to clarify whether the repatriated funds needs to be invested in
Tax Amnesty Bonds or Defined Deposit plans with Banks with a lock in period
• Clarify timelines for repatriation of funds if the funds are locked up in
immovable properties outside Kenya
• Clarify what are the allowed “application of repatriated funds” in Kenya
 Tax Reforms – Big Push to the Automotive sector
w.e.f. 1 January 2018
• Corporate tax rate @ 15%: Companies engaged
in local assembling of motor vehicles will be
subject to reduced corporate tax rate at 15% in
the first five years of commencement of
operations
• Skills and Technology Transfer
• Generate FDI: Local assembly in Kenya by
Volkswagen, Peugeot, Ashok Leyland, Toyota,
Foton
• Boost employment: Automotive sector is one of
the largest employers globally. Local assembly
plants will boost local employment levels
 Tax Reforms – Big Push to the Automotive sector
w.e.f. 3 April 2017
• Exemption from VAT: Specially designed locally
assembled motor vehicles for transportation of
tourists purchased by tour operators upon
recommendation by authority responsible for
tourism promotion
• Conditions to be met:
• Vehicle registered and operated by license
holders
• Used exclusively for transportation of tourists
• Vehicle has the provision for camping, rescue,
first aid equipment, luggage compartment,
communication fittings
 Tax Reforms – Export to prosper – Special Economic
Zones (SEZs) w.e.f. 1 January 2018

• Exemption from dividend tax in respect of dividends

paid to Non-residents by SEZ enterprises,
developers and operators
• Investment deduction of 100% of capital
expenditure incurred for construction of building
and/or purchase and installation of machinery
• Preferential witholding tax rates on payment to non-
residents
Management and professional fees – 5%
Royalty – 5%
Interest – 5%
• Exemption from Export duty and IDF for goods
exported to and imported by SEZ enterprises

Related party transactions with resident persons has to be at arms length

 Tax Reforms – Buy Kenya Build Kenya – Promote local
manufacturing w.e.f. 3 April 2017
• VAT exempt on LPG: Supply of LPG has been exempted
from VAT. This would push the cost up in short term to
medium term. However, the Finance Bill 2017 has
exempted from VAT, inputs used for manufacture of LPG
cylinders by licensed manufacturers. This is meant to push
down the cost in long term, promote investment in local
manufacturing and safeguard the local manufacturing set
ups against cheaper imports
• Refund of Excise duty paid on purchase of Illuminating
Kerosene which is a critical raw material in manufacture of
Paints and Resins. In order to avail refund, the
manufacturers are requires to register as per the
provisions of Excise Duty Act 2015. This move will have a
positive impact on the Real estate and Construction sector
• VAT exempt on inputs purchased for manufacture of
pesticides. This will have a positive impact on Agro and
Horticulture sector and allow local manufacturers a fair
playing ground
 Tax Reforms - Handling food inflation w.e.f. 3 April 2017
• VAT zero-rated on maize (corn) flour and ordinary
bread: This will allow manufacturers to claim VAT on
Excise Duty Rates will be
inputs from KRA and pass on the cost benefit to
Inflation Adjusted from July
consumers 2017 which will push cost of
excisable goods up
• Duty free import of white maize for the next four
months
 Tax Reforms – VAT Rationalization
w.e.f. 3 April 2017
• VAT exempt on medical equipments and
apparatus: Specialty hospitals with 50 Bed +
capacity can avail this benefit upon approval by
CS for Health
• VAT exempt on aircraft spare parts imported by
aircraft operators and those engaged in aircraft
maintenance services after recommendation
from authority responsible for civil aviation
• VAT zero-rated for medicaments containing
penicillin or derivatives thereof, with penicillanic
acid structure or streptomycin or their derivatives
 w.e.f. 1 January 2018
Tax Reforms – Change in Individuals Tax Rates

Tax bands expanded by 10%

for second year in row to
compensate for inflation to
low income earners

Exemption of tax on bonus, overtime allowance and retirement benefits

for low income employees to continue: This benefit will be available to
employees whose taxable employment income before bonus and overtime
allowance does not exceed the lowest tax band (i.e. Kshs 12,298)
 Tax Reforms – Witholding VAT w.e.f. 3 April 2017
• Provisions of Witholding VAT were codified in 2016 by insertion new Section in the Tax
Procedure Act 2015. A person appointed as Witholding VAT agent is required to withhold
6% of taxable value on purchasing taxable supplies at the time of payment of supplies and
remit the same to Commissioner
• Cash strapped: Suppliers earning low margin on their products and supplying
goods to customers, who are appointed as Witholding VAT agents, have felt
severely cash strapped due to 6% of their sales value being withheld and resulting
in their inability to rotate swiftly their working capital. Further, due to low credit
expansion by Banks in 2016, many of these suppliers have been unable to enhance
their working capital facilities
• Finance Bill 2017 takes cognizance of this situation and provides that if due to
nature of business of the supplier and due to application of Witholding VAT
provisions, a supplier can sufficiently demonstrate that he is going to be in a
continuous credit position for a period of minimum of 2 years, then the
Commissioner can exempt such supplier from applicability of such provision
Tax Reforms – Witholding VAT – Example of Trader with 4 %
margin
Tax Reforms – Discouragement of rise in Betting, Gaming
and Lottery culture in Kenya w.e.f. 1 January 2018
• The global gambling industry profits for the year 2016 were
estimated at $ 385 billion with online gaming accounting for 11%
of the profits

• Sportpesa which was launched in Kenya in 2013 boasts over one

million subscribers. The other companies in the Kenyan market
includes Chezafutaa, Betway, Betin, Elitebet, Betyetu, Justbet,
Easybet, Lucky ToYou and KenyaSportsBet

• Importation of slot machines in Africa has increased due to their

low costs e.g. in Kenya, one can purchase a slot machine for as
little as 100 Euros directly from the manufacturers
 KRA powers expanded for Search and Seizure
w.e.f. 3 April 2017
• Tax Procedures Act 2015 has been amended to insert new
provisions that has empowers KRA authorised officers to
enter and search any premises and seize, collect and detain
evidence and produce such evidences in any proceedings
before a court of Law or Tax appeals Tribunal

• This change has gathered widespread attention and concern

and it would be important for KRA to issue guidelines on rules
within which such new provisions would be operated to avoid
any abuse
Disclaimer

Information provided here is of general nature and is not intended to address the circumstances of
any particular individual or entity. The Information compiled in this document has been drawn
and interpreted from the Budget Statement by Cabinet Secretary for National Treasury on 30
March 2017, Finance Bill 2017, Economic Indicators issued by Kenya National Bureau of Statistics,
Central Bank of Kenya website, UCTAD Knowledge resource website, East Africa Community
Customs Resources. A misstatement or omission of any fact or a change or amendment in any of
the facts and assumptions we have relied upon may require a modification of all or a part of this
document. Although we endeavor to provide accurate and timely information, there can be no
guarantee that such information is accurate as of the date of it is received or that it will continue
to be accurate in future. No one should action such information without appropriate professional
advice and after a thorough examination of the particular situation
Contacts
FCA. Simant Prakash
International Contact Partner

CPA. Jitendra Swaly

Senior Partner, Kenya

CPA. Gurudas Anvekar

Senior Partner, Tanzania

CA. Dipak Chatterjee

Senior Partner, India

CA. Vijay Sastry

Director, Canada

Kamal Iyaroo
Director, Mauritius

CA. Imran Juma

Director, Kenya

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