On 31 July 2024, the Court of Appeal declared the Finance Act, 2023, as being unconstitutional, having found that the process leading to the enactment of the Act was fundamentally flawed and in violation of the Constitution of Kenya, 2010.
With the declaration of the Finance Act, 2023 as unconstitutional, the various tax changes imposed under the Act have been annulled by the judgment by the Court of Appeal. Below are some notable tax changes that were introduced by the Act:
non-deductibility of expenses not supported by electronic invoices (under the Tax Invoice Management System, known as TIMS or eTIMS);
exclusion of local debt from earnings before interest, taxes, depreciation and amortization (EBITDA) computations when calculating interest restriction;
reduced corporation income tax of branch companies from 37.5% to 30% and introduction of the 15% repatriation tax imposed on branches;
introduction of capital gains tax on indirect transfers;
higher employment tax bands (32.5% and 35%) for employees earning more than 500,000 Kenyan shillings (KES 500,000) per month.
zero-rating of VAT on exportation of taxable services, which were previously exempt from VAT (those relating to business process outsourcing); and
removal of the provisions on remission of penalty and interest.
However, the government of Kenya appealed the matter to the Supreme Court and on 20 August 2024, the Supreme Court issued conservatory orders suspending judgment delivered by the Court of Appeal. In the said conservatory orders, the Supreme Court found that:
the appeal is arguable and not frivolous;
unless the order is granted, the appeal, if it were to succeed, would be nugatory; and
it is in the public interest that the order be granted.
The matter was heard on 10 and 11 September 2024 and the judgment will be issued on notice.
Way forward: What happens pending the determination of the matter at the Supreme Court
The effect of the conservatory orders is that the Finance Act 2023 is currently in force until further directions are issued by the Supreme Court in their final determination. Therefore, taxpayers are required to comply with the current tax law.
Does the current tax law require your business to comply with eTIMS? Compliance with these regulations is highly recommended.
Here’s how we can assist you comply with the current eTIMS compliance regulations.
Our team is ready and eager to assist with the seamless integration and adoption of eTIMS as an approved eTIMS integrator ensuring a smooth transition for you and your institution enabling you to meet the latest legal requirements.
Contact us today for further assistance. Email us at info@namiri.tech or call or Whatsapp 0112685368.
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