In a significant announcement, Treasury Cabinet Secretary John Mbadi revealed that the Kenyan government may not introduce a Finance Bill for 2025. This decision aims to alleviate the tax burden on citizens and businesses. Instead, the government is considering reducing the corporate income tax rate from 30% to 25% and lowering the Value Added Tax (VAT) from 16% to 14%. These proposed changes are part of a broader strategy to enhance economic stability and promote growth in the country.
In addition to these tax reductions, Mbadi proposed a new 15% tax specifically targeting social media and digital businesses, aimed primarily at multinational corporations rather than local users. This proposal is part of the Tax Laws (Amendment) Bill 2024, which seeks to shift from a 1.5% Digital Presence Tax to a 6% Significant Economic Presence Tax. The bill also aims to broaden the definition of 'digital marketplace' to include services such as ride-hailing and food delivery, reflecting the evolving nature of digital commerce in Kenya [403df940].
Mbadi criticized the previous misuse of tax revenues, emphasizing the need for a more responsible approach to budgeting. As part of this initiative, the government will initiate a zero-based budgeting process, which requires all expenses to be justified for each new period, rather than using the previous year's budget as a baseline. This approach aims to ensure that funds are allocated efficiently and transparently.
To support its financial goals, the government plans to raise KSh 170 billion by reintroducing sections of the Finance Bill 2024 that were previously rejected. National Treasury officials defended this move, stating that reintroducing these taxes is essential to cut down on borrowing and manage the national debt effectively. Critics of the new digital tax argue that it could lead to increased data prices, making internet access less affordable for Kenyans. However, Mbadi emphasized the necessity for foreign corporations to contribute to Kenya's economy, suggesting that the proposed tax could lead to higher costs for telecommunication companies and businesses relying on digital advertising [403df940].
The discussions surrounding the Finance Bill and tax policies come at a crucial time as the government seeks to navigate the challenges posed by the current economic climate. The proposed changes are expected to have a significant impact on both individuals and businesses, potentially fostering a more favorable environment for investment and consumption in the coming years.