Significant Changes - Quartet Consulting

SIGNIFICANT CHANGES:

Last reviewed – 26 February 2025

1. Corporate & Personal Income Tax

Tax Type	Rate	Key Deadlines
Corporate Income Tax (CIT)	30%	Return: Within 6 months of financial year-end
		Final Payment: Within 4 months of financial year-end
Personal Income Tax (PIT)	35%	Return: 30 June
		Final Payment: 30 April

2. Key Tax Reforms – Tax Laws Amendment Act (TLAA) 2024

The Tax Laws (Amendment) Act, 2024 introduced significant changes aimed at aligning Kenya’s tax framework with international best practices and enhancing revenue collection.

A. Minimum Top-Up Tax

Introduced to align Kenya with the OECD Pillar Two framework, which ensures that in-scope multinational enterprises (MNEs) pay at least 15% effective tax on profits in every jurisdiction they operate.
Applicability: Multinational groups with a consolidated annual turnover of EUR 750 million in at least two of the four previous financial years.
The tax is calculated as the difference between the effective tax rate and 15% on deemed taxable profit (10% of gross turnover).

B. Turnover Tax

Increased from 1% to 3% for MSMEs with annual turnover between KES 1M–25M.
MSMEs earning below KES 1M remain exempt but must still file tax returns.
The upper threshold for turnover tax eligibility reduced from KES 50M to KES 25M under the Finance Act, 2023.

C. Replacement of Digital Services Tax (DST) with Significant Economic Presence (SEP) Tax

The 1.5% DST has been replaced with a 3% SEP tax applicable to non-resident businesses with significant digital economic activity in Kenya.
Exemption for businesses with an annual turnover of less than KES 5M.
Unlike DST, SEP tax does not require user-based criteria, making it more aligned with global digital taxation trends.

D. Withholding Tax (WHT) Adjustments

Residents: 0.5% withholding tax on payments for goods supplied to public entities.
Non-residents: 5% withholding tax on payments for goods supplied to public entities.

E. VAT Changes

Business Transfers: Transfer of a business as a going concern is now exempt from VAT, easing restructuring transactions.

3. Recent Tax Policy & Strategic Developments

National Tax Policy (2023): Introduces a structured tax administration framework, improves compliance, and streamlines tax incentives.
Medium-Term Revenue Strategy (MTRS) 2024-2027: Targets an increase in tax-to-GDP ratio from 13.5% to 20% through rationalizing exemptions, aligning with the OECD/G20 BEPS framework, and strengthening tax expenditure monitoring.

4. Proposed Tax Reforms

Kenya’s tax system has undergone piecemeal amendments since the Income Tax Act (ITA) of 1974, leading to inconsistencies.

To modernize tax legislation and improve clarity, the government has introduced several strategic reforms:

A. Income Tax Bill (ITB) – 2018

Aims to overhaul the outdated ITA (1974) to provide a simpler and clearer tax framework.

B. National Tax Policy (NTP) – 2022 & 2023

Establishes guidelines for tax administration, enforcement, and policy development.
Ensures certainty in the tax regime and aligns economic and tax policies.
Tabled in Parliament on 23 November 2023 for implementation.

C. Medium-Term Revenue Strategy (MTRS) 2024-2027

Published in September 2023, aiming to increase tax-to-GDP ratio from 13.5% to 20% by 2026/27.

Identifies low compliance and tax expenditures as key challenges.

Key Measures:

- Review & rationalization of tax exemptions and preferential rates for CIT, PIT, VAT, excise, and customs duties.
- Tax Expenditure Governance Framework to improve transparency.
- Strengthening coordination between the National Treasury, KRA, and stakeholders.
- Aligning with EAC Common External Tariff and OECD/G20 BEPS framework.

By implementing these measures, Kenya aims to enhance tax compliance, revenue collection, and policy efficiency.

5. Other Key Amendments

Amendment	Revised Threshold
Non-cash benefits exemption	KES 60,000 (up from KES 36,000)
Employee meal allowance exemption	KES 60,000 (up from KES 48,000)
Tax-free gratuity threshold	KES 360,000 per year (up from KES 240,000)

SIGNIFICANT CHANGES:

Related Content

We're excited to connect and collaborate with you on innovative strategies that will shape the future of your business.

© Copyright 2025 Quartet Consulting - All Rights Reserved.