In a move aimed at enhancing revenue collection while also easing the tax burden on individuals and businesses, the National Treasury of Kenya has unveiled a comprehensive set of tax reforms to be incorporated into the Tax Laws (Amendment) Bill 2024 and the Business Laws (Amendment) Bill 2024. These proposed changes come as part of the government’s ongoing efforts to modernize the country’s tax landscape and create a more taxpayer-friendly environment.
Key Proposals in the 2024 Tax Reform Bills
- Increase in Tax-Free Benefits
Among the most significant changes is the increase in the annual tax-free meal allowance from KSh 48,000 to KSh 60,000. This move aligns with efforts to improve employee welfare by raising the non-taxable employment benefits threshold from KSh 36,000 to KSh 60,000, making it easier for workers to benefit from allowances without additional tax burdens. - Higher Tax-Free Pension Contributions
The Bill also proposes to raise the tax-free pension contribution exemption from KSh 240,000 to KSh 360,000, allowing individuals to save more for retirement without incurring tax liabilities on their contributions. - Deductions on Housing and Medical Contributions
In a bid to promote housing and healthcare security, the Bill proposes allowing taxpayers to deduct housing levy contributions, SHIF payments, and contributions to a post-retirement medical fund of up to KSh 15,000 per month when determining taxable income. - Home Loan Deduction Enhancement
For homebuyers and property owners, the reforms would increase the deductible interest for loans taken to purchase or improve a residential home from KSh 300,000 to KSh 360,000 annually, making home ownership more affordable. - Pension Benefits Exemption
In a move that could benefit many retirees, the Treasury has proposed that pension benefits be fully exempt from income tax, helping to ensure that those who rely on their pension savings in retirement are not taxed on their hard-earned funds. - Tax Amnesty Extension
The government is extending the tax amnesty period until June 30, 2025, allowing individuals and businesses more time to come into compliance with tax obligations without facing penalties. - Excise Duty and VAT Adjustments
Changes to excise duty regulations include extending the payment period for alcoholic beverages excise duty from 24 hours to the fifth day of the following month, giving businesses more breathing room. Additionally, the proposal to exempt the transfer of a business as a going concern from VAT aims to streamline business transactions and foster economic growth.
Government’s long-term vision: A more business-friendly tax regime
Treasury Cabinet Secretary, John Mbadi, emphasized that these reforms are designed to foster a more equitable tax system that encourages growth while reducing the burden on taxpayers. Notably, Mbadi hinted that the government might not introduce new tax laws in 2025, signaling a shift towards a more stable and predictable tax environment.
Looking ahead, Mbadi revealed plans to reduce corporate income tax from 30% to 25% and Value Added Tax (VAT) from 16% to 14%, providing businesses with more resources to reinvest and grow. These cuts could have a significant positive impact on the economy, stimulating investment and creating new job opportunities.
Addressing public concerns: Mismanagement of tax funds
Despite the positive outlook, Mbadi acknowledged that there have been concerns over the misuse of taxes collected from the public. He reiterated that the government is committed to ensuring that tax revenues are spent efficiently, with a focus on transparency and accountability in public expenditure.
