The President of the Republic of Kenya assented to the new Finance Act, 2019 (the “Act”) on 7^th November, 2019. The Act which amends various laws relating to taxes and duties comes into effect on various dates as expounded below.

Highlight of tax changes introduced by the Act include the following:

1. Amendments to the Income Tax Act:

1. 1. With effect from 11^th November 2019, corporate tax on demurrage charges shall apply for non-resident shipping lines.
   2. With effect from 7^th November 2019, Withholding tax shall apply to reinsurance premiums paid to non-residents.
   3. Companies implementing projects under the affordable housing scheme are exempted from the application of thin capitalization rules as from 1^st January 2020.
   4. With effect from 1^st January 2020 the Turnover Tax at the rate of 3% of the gross receipts of a business shall be payable for businesses whose annual turnover does not exceed 5 Million (approximately US$ 50,000). The Turnover Tax shall be payable monthly. However, the presumptive tax (15% of the of the amount payable for a business permit or trading license issued by a county government) paid by such businesses shall be offset against the Turnover Tax.
   5. With effect from 1^st January 2020, deposits held in a registered Home Ownership Savings Plan (HOSP) shall be invested in accordance with the prudential guidelines issued by the Central Bank of Kenya or investment guidelines issued by the Capital Markets Authority. The approved Institutions which can hold deposits of a HOSP has also been expanded to include Fund Managers or Investment Banks registered under the Capital Markets Act.
   6. With effect from 1^st January 2020, the following incomes will be exempt from tax:
      1. The income of the National Housing Development Fund (“NHDF”);
      2. Income earned by an individual registered under the Ajira Digital Program for 3 years beginning January 1, 2019 shall be exempted from tax provided that that the individual shall pay a registration fees of KES 10,000 to be eligible for the exemption;
      3. The amount withdrawn from the NHDF to purchase a house by a contributor who is a first-time home-owner.
      4. Interest income accruing from all listed bonds, notes or other similar securities used to raise funds for infrastructure, projects and assets defined under Green Bonds Standards and Guidelines, and other social services, provided that such bonds, notes or securities shall have a maturity of at least three years
      1. With effect from 7^th November 2019, the corporate tax for investors operating a plastic recycling plant for the first 5 years shall be at the rate of 15%.
      2. With effect from 7^th November 2019, the transfer of property necessitated by a transaction involving the incorporation, separation, dissolution, acquisition, amalgamation, recapitalization or similar restructuring of a corporate entity shall be exempt from Capital Gain Tax. The exemption shall only apply where the transfer is:
      1. a legal or regulatory requirement;
      2. under directive or compulsory acquisition by the government;
      3. an internal restructuring within a group which does not involve transfer to a third party; and
      4. in the public interest as approved by the Cabinet Secretary (CS) for Treasury.

    

   2. With effect from 7^th November 2019, the following amendments shall apply in relation to Value Added Tax (VAT):

2. 2. 1. Taxation of the supply of goods and services made through a digital marketplace. A digital marketplace is defined as platform that enables the direct interaction between buyers and sellers of goods and services through electronic means. The Act empowers the CS for Treasury to make regulations under the VAT Act on mechanisms for taxation of supplies made through digital marketplaces.
      2. The supply or importation of the following goods shall now be exempted from VAT:
         1. Locally manufactured motherboards.
         2. Inputs for the manufacture of motherboards approved by the CS responsible for information communication technology.
         3. Plant, machinery and equipment used in the construction of a plastics recycling plant.
         4. The supply of maize (corn) flour, cassava flour, wheat or meslin flour and maize flour containing cassava flour by more than ten percent in weight.
         5. Goods imported or purchased locally for the direct and exclusive use in the construction of houses under an affordable housing scheme approved by the CS for Treasury on the recommendation of the CS responsible for matters relating to housing.
         6. Musical instruments and other musical equipment, imported or purchased locally, for exclusive use by educational institutions, upon recommendation by the CS responsible for Education.
         7. Specialized solar equipment subject to approval by the Cabinet Secretary for Energy.

          

      3. The following supplies are now zero-rated:
         1. Agricultural pest control products.
         2. Propane

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