Kenya: 2009 Ernst and Young Budget Review

Tuesday, 16 June 2009

Page 2 of 7   BUSINESS TAX Tax Losses Tax deficits can only be used in the year of income that they arise and the subsequent four years. Previously, tax deficits could be carried forward indefinitely. Tax losses will subsequently be forfeited after five years. Medical expenses (Medical insurance cover) Expenditure incurred by a partnership for the benefit of any partner or a sole proprietorship for the benefit of the proprietor in securing a medical cover or medical insurance allowable up to KES1 million. Previously expenditure incurred by a partnership or a sole proprietor in securing medical cover was not considered an allowable expenditure. Effective date: 01 Jan 2010   Import duty set off against income tax Import duty set off against income tax repealed. Duty paid on importation of capital goods qualifying for wear and tear was available for offset against income tax. Import duty costs can only be capitalised. Withholding tax on rent Payment for use of property whether or not located in Kenya deemed to be income accruing or derived from Kenya . Tax was only levied for a right granted for use of property in Kenya . Property owners outside Kenya renting property to Kenyan residents or persons with a Permanent Establishment in Kenya will be subject to tax in Kenya . NSSF contributions NSSF contributions are an allowable expenditure in ascertaining taxable income. NSSF contributions by employer were not an allowable expenditure on the employer. Equity restored. Capital expenditure on fibre optic cable Expenditure of a capital nature incurred in acquisition of an indefeasible right to use a fibre optic cable by a telecommunication operator granted deduction of 5% per annum. Previously, there were no incentives for investment in fibre optic cable. Definition of training fee Definition of training fee for purposes of Withholding tax expanded to include incidental costs thereon. Previously training fee definition did not include incidental costs associated with the provision of such services. All costs payable to a trainer will attract Withholding tax. Commissions to non resident travel agents Commissions paid to non resident travel agents to secure tickets for international travel not subject to withholding tax. Commissions to non resident agents were subject to withholding tax. Addresses hardship experienced on collection of withholding tax by air operators. Discretionary powers of the Commissioner to demand tax The commissioner may require payment of tax where there is risk of non payment. No provision in regard to demand for payment of tax merely on risk of non payment existed. The Commissioner's tax collection tentacles extended. Hostels, educational building and buildings in use for training Allowance increased to 50% per annum on cost. A building in use for training granted same treatment as hostels and educational building. Industrial building allowance on expenditure on hostels and educational buildings was 10% per annum. Incentive increased to encourage investment in Education Sector.   Rental residential buildings in planned development area Allowance increased to 25% per annum on cost. Previously, Industrial building allowance was granted at 5% per annum. Commercial buildings Allowance granted at 25% per annum on cost. No Industrial building allowance granted previously. Telecommunication equipment Specific allowance granted at 20% per annum on cost. Previously, all telecommunication equipments were regarded as “other machinery” and granted a 12.5% wear and tear allowance on the qualifying cost. Investment deductions on machinery and buildings Qualifying cost over two hundred million shillings to qualify for Investment deduction capped. No capping on the qualifying cost for Investment deduction purposes previously existed.   Filming equipment Investment deduction introduced for local film producers on purchase of filming equipment granted at 100%. Previously, not granted investment deduction. Investment in satellite towns Special incentive for investment in the satellite towns adjoining Nairobi , Mombasa or Kisumu introduced to 150%. Previously a lower capital allowance of 100% applied across all geographical regions. Incentive to encourage regional growth and also decongest the three cities. Concessionary arrangements Claim on capital expenditure under a 9. concessionary arrangement introduced and to be spread over the period of the concession. Previously no special incentive existed for concessionary arrangements. Computer software Expenditure on computer software allowable at the rate of 5% per annum. No guideline on the treatment of computer software previously existed. Interest on bearer bonds Withholding tax rate reduced to 10% for bearer bonds with a maturity of 10 years. Interest on bearer bonds regardless of the maturity, was subject to withholding tax at 15%. Claw back provisions in leasing rules Claw back provisions clarified in regard to the effect on both the lessor and lessee. The Income Tax leasing rules lacked clarity. Ambiguity removed. Taxation of Insurance Companies Gains from Resident Life Insurance Companies Clarification on actuarial surplus to be included in computing gains of life insurance companies as actuarial surplus determined under the Insurance Act and recommended for transfer by the actuary from the life fund for the benefit of the shareholders and the policyholders. Incase of an actuarial deficit, negative transfers to be limited to the actuarial surplus recommended for transfer by the actuary from the life fund for the benefit of the shareholders in previous years of income. Taxable actuarial surplus on resident life insurance company was the recommended actuarial surplus by the actuary as transferable from the life fund for the benefit of the shareholders benefit whether transferred or not. Negative transfers were limited to surplus recommended by the actuary as transferable whether or not it was transferred in previous years of income.   Gains from Non-Resident Life Insurance Companies Clarification of actuarial surplus to be included in computing gains of non-resident life insurance companies as the actuarial surplus determined under the Insurance Act and recommended for transfer by the actuary from the life fund for the benefit of the shareholders and the policyholders in proportion of insurance business in Kenya to total life insurance business. Incase of an actuarial deficit, negative transfers limited to actuarial surplus recommended for transfer by the actuary from life fund for benefit of shareholders in previous years of income. Taxable actuarial surplus on nonresident life insurance company was the recommended actuarial surplus by the actuary as transferable from the life fund for the benefit of the shareholders benefit whether transferred or not, in proportion of insurance business in Kenya to total life insurance business. Negative transfers limited to surplus recommended by the actuary as transferable whether or not it was transferred in previous years of income. Quarterly PAYE Returns Employers required to file a return on quarterly basis of emoluments paid to each employee before the 10th day of the month following the end of each quarter. Previously, PAYE returns were filed on annual basis by the 28th of February of the following year. No change on the due date for remittance of monthly PAYE. To enhance compliance on taxation of employment income and related benefits. Effective date: 12 June 2009 << Start < Prev 1 2 3 4 5 6 7 Next > End >>