Kenya: Tax measures in Finance Bill, 2021

Value added tax, excise tax, digital services tax, country-by-country reporting

Value added tax, excise tax, digital services tax, country-by-country reporting

The Finance Bill, 2021 was introduced for first reading in the National Assembly on 5 May 2021—consistent with the recent practice when finance bills were introduced for debate prior to the reading of the budget in June of each year.

The Finance Bill, 2021 proposes a number of tax-related amendments including measures that would affect income tax, value added tax (VAT), excise tax, and other taxes. Some of the proposed amendments appear to be reactions to court cases in which the decisions were issued in favor of the taxpayers. For instance, the taxation of the export of services has been litigated in a number of cases and is now targeted for amendment to deny taxpayers a refund of input VAT.

Also, a proposed introduction of VAT on ordinary bread and other basic products is expected to be a subject of debate, given the potential impact such taxes could have on the cost of living.

Lastly, the Finance Bill, 2021 proposes a number of changes to adopt certain international practices—such as limiting digital services tax to non-resident entities and the introduction of country-by-country (CbC) reporting for multinational enterprise (MNE) groups.

Digital services tax

The Finance Bill, 2021 proposes to expand the definition of digital services to include supplies made over the internet or an electronic network in addition to those made through a digital marketplace.

Further, the definition of a digital marketplace would be expanded to mean an online platform that enables users to sell or provide services, goods or other property to other users.

The expanded definition of digital services subject to VAT would thus add those made over the internet or an electronic network. In addition, the expansion of the definition of the digital marketplace would extend the base for purposes of determining what comprises digital services for purposes of chargeability to VAT.

Country-by-country reporting

The bill proposes a requirement for the ultimate parent entity of a multinational enterprises group (MNE) to submit a return detailing the group’s financial activities in Kenya as well as in other jurisdictions where the group has a taxable presence. The term “ultimate parent entity” is defined as an entity that:

  • Is resident in Kenya for tax purposes
  • Is not controlled by another entity; and
  • Owns and controls a multinational enterprise group.

For these purposes, an MNE group includes two or more enterprises that conduct business through a permanent establishment or through any other entity in another jurisdiction.

The return filed by the ultimate parent entity would include information relating to the amount of revenue; profit or loss before tax; income tax paid; income tax accrued; stated capital; accumulated earnings; number of employees; and tangible assets other than cash or cash equivalents with regard to each jurisdiction in which the group operates. The return would be due not later than 12 months from the last day of the group’s financial year.

The proposed provision would apply to MNE groups that have gross turnover exceeding the prescribed revenue threshold (the threshold is not provided in the Finance Bill, 2021).

Read a May 2021 report [PDF 1.66 MB] prepared by the KPMG member firm in Kenya



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