Kenya Tax: Income Tax Act
It is proposed that gratuity or similar payment in respect of employment or services rendered which is paid into a registered pension scheme not exceeding KES240,000 per annum will not constitute taxable "gains or profits" for income tax purposes.
A new definition of "deemed interest" has with effect from 11 June 2021 been introduced in regard to the current thin capitalization rules in the Income Tax Act, in a move intended to combat tax planning schemes. Interest would be deemed in the case of interest free loans at the Treasury Bill rate. However it appears that this change is impractical as no interest is deductible where loans are interest free. It also appears to be the intention of the KRA to bring "deemed interest" to the withholding tax regime, however, there are no enabling provisions that have been introduced to allow for withholding tax to be chargeable on the interest.
The definition of "related person" in reference to transfer pricing rules and regulations has with effect from 11 June 2021 been expanded to include individuals related by marriage, consanguinity or affinity who participate in the management, control or capital of two cross-border businesses which have entered into transactions with each other.
Withholding tax applicable on the leasing of aircraft engines by a resident person from a nonresident lender has been abolished with effect from 11th June 2010 (leasing of aircraft were already exempted from withholding tax).
Withholding tax applicable on leasing of assets other than land and buildings (such as equipment) by a resident person has been abolished with effect from 11 June 2010.
Additional penalties arising under the provisions of Section 72D of the Income Tax Act have been amended to clarify that they do not apply to failure to deduct and remit PAYE or failing to remit withholding tax by the due date with effect from 11 June 2010. Basic penalties of 25% and 10% respectively continue to apply with effect from 11 June 2010.
A new section 123B introduces an amnesty with effect from 11 June 2021 from taxes, penalties or interest in respect of the taxable income of any citizens of Kenya living and earning income outside Kenya and the returns and accounts for the year 2010 are submitted on or before the 30 June 2011.
Capital allowances have been provided for under the Income Tax Act for the following items:
- expenditure incurred by the owner or tenant of agricultural land on the construction of farmworks for the year commencing 1 January 2022 will qualify for 100% deduction of that expenditure incurred (this change is effective 1 January 2022).
- Capital allowances available to a concessionaire would now only be available where the concessionaire incurs capital expenditure on the purchase of machinery or on the construction of roads, bridges or similar infrastructure under a concessionairing arrangement (this change is effective 1 January 2022).