2023 marked a pivotal year for Kenya as President William Ruto rolled out a series of rigorous tax reforms. These changes, in line with Kenya’s agreement with the International Monetary Fund (IMF), were aimed at steering the nation away from the financial crises that engulfed other African countries. President Ruto, in his Jamhuri Day address, emphasized that these tough measures were essential to prevent a financial downturn similar to those in Ghana, Zambia, and Ethiopia.

In the middle of the year, the Kenyan National Assembly passed the Finance Act 2023 amidst fiery debates. The objective? To drum up an additional Sh211 billion in taxes for the Kenya Kwanza administration. This surge in revenue aimed to support an expanded budget under pressure from soaring debt service costs.

A Cascade of New Taxes

Kenyan workers faced the brunt of these changes, including a new 1.5% housing levy, a jump in VAT on petroleum products to 16%, and an uptick in costs for mobile money transactions. The Finance Act also introduced taxes on digital asset transfers and tripled the turnover tax to 3%.

The telecom sector wasn’t spared either. With a hike in excise duty on mobile money transfers to 15%, Safaricom raised its M-Pesa charges. Additionally, there was a 15% excise duty on adverts in sectors like alcohol and betting.

The Impact on High Earners

For the high earners, new tax bands were introduced for monthly incomes exceeding Sh500,000 and Sh800,000. Perks like club subscriptions paid by employers now count as taxable benefits.

The government expanded its revenue collection beyond typical taxes. Charges for essential services like passport processing and marriage certificates saw an increase.

The Treasury set an ambitious target to raise Sh2.6 trillion in ordinary revenue for the fiscal year 2023/24, with a focus on increasing non-tax revenues from various government departments.

The Burden on Workers and Businesses

This tax overhaul has had far-reaching effects. Employees are tightening their belts, and some have lost their jobs as companies downsize. The Federation of Kenya Employers highlighted the dismissal of around 70,000 workers due to these tax changes.

A CBK survey revealed that CEOs are concerned about the increased tax burden. The survey indicated that 20% of CEOs viewed higher taxation as the primary obstacle to their companies’ growth.

Bright Spots Amidst the Tough Times

However, it wasn’t all grim. The reduction in excise duty on telephone and internet services from 20% to 15% led to lowered charges for these services. The pharmaceutical industry also saw a boost, with tax exemptions introduced for foreign investments in vaccine production.

The year 2023 has been a landmark year for Kenya in terms of fiscal policy, with President Ruto’s tax measures reshaping the economic landscape. As the country adapts to these changes, the true impact on the economy, businesses, and ordinary citizens continues to unfold.

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