Removal of VAT Exemptions & 3 Tax Measures Ruto Govt is Eying From July

President William Ruto addressing residents of Kericho County on March 25, 2024.
President William Ruto addressing residents of Kericho County on March 25, 2024.

As preparations for the 2024-2025 budget get into top gear, there are tax measures the government is eying to implement in the upcoming financial year.

While some of the measures are aimed at helping the government achieve its revenue targets in the Ksh4 trillion budget, other measures include reducing the Corporate Tax rate. highlights four major tax measures that could be introduced from July as highlighted in the Medium-Term Revenue Strategy.

Job seekers in Nairobi
Job seekers in Nairobi

Reduction of Corporate Tax

Many corporate entities, especially, international ones will benefit significantly as the government aims to reduce the current corporate tax rate from 30 per cent to 25 per cent.

This is usually a tax that is imposed on profits that are made by companies.

The Why: As explained in the strategy document, the proposal aims to encourage investors to come and set up shop in the country and help the country regain its competitiveness as the preferred investor hub in the region and the continent.

Ripple Effect: The government projects that the move will create more employment opportunities as investors set up their companies in the country.

"Studies have shown that high rates of corporate income tax discourage foreign direct investments and encourage investors to lobby for lower rates or tax exemptions. Further, high rates contribute to increased tax planning and reduced compliance by taxpayers, which is the case in Kenya," the government explained.

Remove VAT Exemptions

As outlined in the strategy document, the government will remove VAT exemptions on processed goods. Already, there are proposals to introduce a 16 per cent VAT on bread and milk.

The Why: The government notes that the move is aimed at helping the government meet its revenue targets.

Ripple Effect: Should the government implement this measure the cost of some commodities is expected to rise in the long run and ultimately increase the cost of living.

"However, the government will develop an appropriate strategy to address the tax burden on essential goods and services. The review will also take into consideration exemptions and zero rating that are granted on a reciprocal basis and as per international conventions to which Kenya is a party," Treasury highlighted in the strategy document.

Collage photo of a loaf of bread alongside milk in a supermarket aisle in Kenya
Collage photo of a loaf of bread alongside milk in a supermarket aisle in Kenya

Carbon Tax

This is a new tax the government is eyeing to introduce in various sectors that have had negative effects on the environment.

Specifically, this tax targets companies and the motor vehicles industry, especially vehicles that run on fossil fuel. According to the plan the tax is proposed to be based on carbon content released in the air.

For vehicles, the government will implement this tax by increasing the excise tax on vehicles that use Super Petrol and Diesel.

The Why: The government explains that the move is aimed at protecting the environment and encouraging the adoption of green energy and electric vehicles.

Ripple Effect: For starters, this move will make vehicles more expensive for Kenyans. On the other hand, companies may want to minimize the risks of high taxation by increasing the costs of their goods and reducing their workforce.

"Motor vehicle emissions contribute to air pollution which also has significant health effects. The following will be evaluated within the scope of a carbon tax: Gradual increase of excise taxes on vehicles that use fossil fuels to address environmental damage and negative health effects. The increase will be phased over the Strategy on imported vehicles.

"Review the current taxes on electric vehicles that are environmentally friendly and support the transition to a green economy," read the strategy document.

Motorists on a Colossal Traffic Jam Along Busy Uhuru Highway in Nairobi
Traffic jam witnessed along busy Uhuru Highway in Nairobi in 2019
Simon Kiragu

VAT on Education Services

On the other hand, the government is mulling over introducing VAT on some education services that do not touch directly on the education of students.

This includes services like swimming that are offered in private schools and high-end learning institutions.

The Why: The Treasury explains that some of the schools have been enjoying exemptions for services that are vatable. This move is also expected to help the government meet its revenue targets.

Ripple Effect: This move may see some private institutions raise their fees to factor in the payment of the new tax.

"The exemption from VAT on education that includes all services provided by schools creates unfairness as some services like swimming when offered out of school are vatable. To remove this discrimination, there is a need to impose VAT on the additional benefits," Treasury stated.

Undated file image of a swimming pool
A photo of a swimming pool within an Estate in Nairobi County.