Kenya: Tax measures enacted in Finance Act, 2021

The Finance Act, 2021 introduces a number of changes that will align Kenya with international best practices.

Changes that will align Kenya with international best practices

The Finance Act, 2021 was signed into law by the president on 29 June 2021 and then published in the official gazette on 1 July 2021.

The Finance Act, 2021 introduces a number of changes that will align Kenya with international best practices including:

  • The introduction of country-by-country reporting for multinational enterprises (MNEs)
  • The introduction of more stringent regulations on thin capitalization

Other tax measures are designed to enhance the tax base, with more transactions now being subject to taxation and by increasing the tax on yet other transactions. For instance, changes to the scope of the digital services tax are potentially an area for revenue growth.

Some of the measures appear to be reactions by the Kenya Revenue Authority to recent taxpayer-favorable decisions of the Tax Appeals Tribunal and the High Court. For example, regarding cases concerning the taxation of exported services, there are measures now to deny taxpayers a refund of input value added tax (VAT).

Lastly, there are provisions that are intended to provide relief to taxpayers from the effects of the coronavirus (COVID-19) pandemic on the economy. For instance, one measure repeals the 10-year limit for the use of tax losses. Additionally, the Commissioner is now allowed to refrain from assessing or recovering unpaid tax from a taxpayer when there is an inability to recover the unpaid tax.
 

Read a July 2021 report prepared by the KPMG member firm in Kenya 

 

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