A Step Towards Tax Stability: Kenya Curtails Revenue Authority’s Power to Alter Excise Duty

by | May 5, 2023 | Business, News | 0 comments

In a bid to increase predictability in Kenya’s taxation system, the government has proposed legislation that would restrict the Kenya Revenue Authority’s (KRA) authority to make annual excise tax adjustments for inflation. The Finance Bill 2023, recently unveiled, aims to limit the KRA Commissioner-General’s power to modify excise duties on various commodities based on annual inflation data.

Under the proposed legislation, the Commissioner-General would need approval from the National Assembly and the National Treasury Cabinet Secretary to implement inflation-based tax adjustments. This is a departure from the current system, in which the Commissioner-General derives authority to adjust excise duties annually from the Excise Duty Act, 2015, and the Miscellaneous Fees and Levies Act, 2016.

The Finance Bill 2023 stipulates that notices of inflation adjustments on excise must be submitted to the National Assembly within seven days of publication. The National Assembly would then have 28 sitting days to deliberate on the notice. If the National Assembly passes a resolution disapproving the notice, it will cease to have effect.

This development is a welcome change for businesses that have long been concerned about the unpredictable nature of Kenya’s taxation system. The KRA has frequently adjusted excise duties in an erratic manner, causing confusion and uncertainty for businesses and investors.

The Treasury Cabinet Secretary, Njuguna Ndung’u, recently gazetted the Excise Duty (Excisable Goods Management System) (Amendment) Regulations, 2023, establishing new fees for 14 categories of excisable goods, including cosmetics, fruit juices, and alcohol. These new charges follow a 6.3% inflation adjustment on specific excise tax rates, implemented on October 1, 2022, which affected a range of products such as cosmetics, confectionery, alcoholic and non-alcoholic beverages, bottled water, and tobacco and nicotine products.

Manufacturers, foreign investors, local traders, and economists have all called for a more stable and predictable taxation policy to better accommodate businesses and investors. In response to these concerns, President William Ruto announced in March that the government is finalizing a national tax policy to provide greater predictability for businesses and investors, with plans for implementation by June 2023. The policy, which will be in effect for a minimum of three years, aims to enhance transparency in Kenya’s tax regime and allow businesses to make more informed investment decisions.

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