Impact of new tax amendments on Kenyans in 2025

Summary

Kenya's new tax amendments, signed into law by President William Ruto on December 11, 2024, will significantly impact the cost of living and business operations in 2025. The revised tax laws, effective from December 27, 2024, increase VAT and excise duties, raising the prices of consumer goods like sugar, alcohol, and plastic. Retirees will face higher costs due to the abolition of a 15% relief on medical fund contributions. Other changes include an increase in the national Social Security Fund contributions and a hike in the digital service tax. Experts recommend Kenyans take advantage of tax amnesties amid challenging economic times.

Takeaways

• 😀 The Tax Amendment Act and the Tax Procedures Act were signed into law by President William Ruto on December 11, 2024, setting the stage for significant changes to Kenya's tax regime.
• 😀 The new tax amendments are effective from December 27, 2024, and will introduce revisions to major tax laws, including the Income Tax Act, VAT Act, Excise Duty Act, Miscellaneous Fees Act, and the Tax Procedures Act.
• 😀 Increased excise duties on products like sugar, alcohol, and plastic are expected to raise the cost of consumer goods and impact business operations.
• 😀 The 15% tax relief on contributions to post-retirement medical funds, previously capped at KSh 60,000 annually, has been abolished, leaving retirees to bear the full cost.
• 😀 A notable increase in the R Development Levy on imported goods will rise from 1.5% to 2%, which will increase the cost of imports.
• 😀 Starting February 2025, the monthly NSSF contribution will double from KSh 2,160 to KSh 4,320, impacting workers' take-home pay.
• 😀 The retail sector will be affected by a change in the digital services tax, which has been replaced with an Economic Presence Tax, now set at 3% of turnover, up from 1.5%.
• 😀 A new 5% withholding tax on digital platforms will further reduce earnings for individuals and businesses in the digital sector.
• 😀 Experts are advising Kenyans to take advantage of tax amnesties to ensure compliance and avoid penalties in these challenging economic times.
• 😀 These amendments are expected to increase the overall cost of living, impacting both consumers and businesses across various sectors.

Q & A

What significant changes were introduced by the Tax Amendment Act and Tax Procedures Act in Kenya?

The amendments, effective from December 27, 2024, introduce revisions to key tax laws, including the Income Tax Act, VAT Act, Excise Duty Act, Miscellaneous Fees Act, and Tax Procedures Act. These changes are expected to increase taxes, particularly VAT and excise duties, and introduce new deductions affecting income and the cost of living.

How will the increased excise duty rates impact Kenyan consumers?

The increase in excise duties will raise the prices of products like sugar, alcohol, and plastic, directly affecting consumer costs. Business operations will also be impacted due to higher excise duties.

What changes will retirees face due to the Tax Amendment Act?

Retirees will face the loss of the 15% relief on contributions to post-retirement medical funds, previously capped at 60,000 shillings annually. As a result, retirees will bear the full cost of these contributions.

What adjustments were made to the National Social Security Fund (NSSF) contributions?

NSSF contributions will double from 2,160 shillings to 4,320 shillings starting in February 2025, following the provisions of the NSSF Act of 2013. This marks a significant increase from the previous contribution rates in 2023.

How does the increase in the development levy affect Kenyan consumers?

The increase in the development levy on imported goods from 1.5% to 2% is expected to raise the cost of imported goods, which will likely impact consumer prices in Kenya.

What is the expected impact of the changes on the retail sector?

The retail sector will face challenges due to the replacement of the digital service tax with a higher economic presence tax of 3% of turnover. Additionally, a 5% withholding tax on digital platforms may reduce the earnings of businesses operating in this sector.

How will the VAT Act and Excise Duty Act amendments affect Kenyan citizens?

The amendments to the VAT Act and Excise Duty Act will lead to an increase in taxes on certain goods and services, raising the cost of living for citizens. Products like alcohol, sugar, and plastic will experience higher excise duties.

What role do tax amnesties play in this new tax regime?

Experts are urging Kenyans to take advantage of tax amnesties, which allow taxpayers to ensure compliance without facing penalties. This is seen as an opportunity to adapt to the new tax regime during tough economic times.

Why is there concern about the cost of living in Kenya in 2025?

The increased excise duties, VAT rates, and higher social security contributions, along with changes to the retail and development levy sectors, are all expected to drive up the cost of living in Kenya, making it more expensive for consumers and businesses.

What are the key direct taxes that have been affected by the amendments?

Key direct taxes impacted by the amendments include VAT, excise duties, and the national social security fund contributions. The changes in these taxes will significantly affect both individuals and businesses.