Kenya: Key Highlights of the Finance Bill 2010 by Africa Legal Network (ALN)

Tuesday, 15 June 2010

Key Highlights: Corporate and Commercial   The Proceeds of Crime and Anti-Money Laundering Act, 2009 is now slated to come into operation from 28 June 2010. This is of particular importance to accountants, banks, financial institutions, mobile phone companies that offer money transfer services, casinos, real estate agents, jewellers, precious stone dealers, non-governmental organisations and any other designated reporting institution under the Act.   Capital Markets Act, Cap 485A Laws of Kenya: It is proposed that with effect from 1 January 2011, the Capital Markets Authority will now be permitted to share information it receives from any person with other regulatory authorities. Further, the grounds on which the Capital Markets Authority may approve a person as a securities exchange have been amended to allow for the demutualisation of the Nairobi Stock Exchange within three years.   Public Procurement and Disposal Act, 2005: The changes to the Act will, with effect from 1 January 2011, empower a law enforcement agency with an investigative mandate to recommend to the Director-General of the Public Procurement Oversight Authority to debar a person from participating in procurement proceedings.   Insurance Act (Cap 487, Laws of Kenya): With effect from 10 June, 2010 there have been various amendments to the Insurance Act which include the definition of medical insurance business and promulgation of new Insurance (Policyholders’ Compensation Fund) Regulations, 2010, which establish a compensation fund for policy holders to be paid from in the event of insolvency of the insurer.   It is proposed with effect from 1 January 2011 to amend the Insurance Act to include detailed provisions on policyholders compensation in the insolvency of an insurer, to clarify what is meant by indirect control or beneficial entitlement to paid up (no longer “listed”) share capital or voting rights of an insurer, to include registration as insurance agents of citizens of, or partnerships and companies wholly owned by citizens of, the East African Community and to limit personal liability for the Board of Directors of the Insurance Regulatory Authority.   Key Highlights: Property An amnesty has been granted with effect from 11 June 2010 in respect of interest on late payments outstanding up to and including 30 June 2010 in respect of any land rent, principal instalment, royalty or other payments under any lease, licence or agreement relating to any property that is subject to the Government Lands Act.   The penalty accruing every three months for failing to stamp within 30 days an instrument chargeable with stamp duty has been reduced from the current rate of 25% to 5% with effect from 11 June 2010.   As regards stamp duty payable on charges, mortgages and debentures, it appears to have been the intention of the Minister (according to the Budget Speech) to reduce the rate of stamp duty payable from 0.2% to 0.1% of the amount secured with effect from 11 June 2010. However, the Finance Bill, 2010 appears to have amended instead the items relating to collateral or anxillary or substituted security and equitable mortgages which were subject to 0.1% before the Bill.   Key Highlights: Banking and Microfinance Under the proposed amendment to the Banking Act (“BA”), a bank or a financial institution shall with effect from January 2011 not make loans and advances for the purchase, improvement or alteration of land in an aggregate amount which exceeds 40% of its total deposit liabilities. This is up from 25%.   An amendment to BA proposes that where an auditor’s report or an inspection report reveals that an institution conducts its business contrary to BA, Central Bank of Kenya (CBK) shall, with effect from 1 January 2011, among other things, restrict, suspend or prohibit payment of dividend or require the institution to reconstitute its board of directors.   Pursuant to a new section of BA, it is proposed that the Deposit Protection Fund Board shall hold, manage and dispose of all assets of an institution remaining unsold at the time of winding up.   The new amendment to BA proposes that the provisions of BA shall apply to any body contracted by an institution to provide banking services on behalf of the institution to the extent of the services contracted.   With effect from 11 June 2010, the Central Bank of Kenya Act (CBKA) has been amended to exempt CBK from stamp duty in respect of any instrument executed by or on behalf of CBK or in favour of CBK in cases where stamp duty would have been payable but for the exemption.   It is proposed that with effect from 1 January 2011, CBKA will be amended to allow CBK to, subject to the restrictions specified, publish any information furnished to it relating to an inspection of an authorised dealer including disclosing the information to any monetary authority, financial regulatory authority, fiscal or tax agency, or fraud investigation agency within or outside Kenya.   It is proposed that the Microfinance Act, 2006 (MFI) will with effect from from 1 January 2011 be amended to exempt a duly approved agency (by CBK) conducting deposit-taking business on behalf of an institution from the requirements for carrying out deposit-taking micro finance business.   Under the new proposal to amend MFI with effect from 1 January 2011, prior approval of CBK shall be required if a person wishes to open a branch outside Kenya or open or close a branch in Kenya. In addition, the collection of information by CBK and furnishing of information to CBK shall extend to the institution’s agencies. CBK inspections shall also extend to the institution’s agencies and CBK under the new proposed amendment to MFI will have power to impose restrictions or conditions on any arrangement that an institution has with its agencies or direct the institution to terminate any agency arrangement.   Key Highlights: Customs & Excise Act The Customs & Excise Act has with effect from 11 June 2010 been amended to clarify that the ex factory selling price on which excise duty is chargeable will not include the cost of any returnable package, box, bottle or container. This removes confusion which previously existed as to whether excise duty could be charged on returnable containers.   Key Highlights: Value Added Tax Act In line with the government’s move to reduce taxes on air carriage and transportation, landing and parking services payable in respect of aircraft has been zero rated for VAT purposes with effect from 11 June 2010.   A person who having constructed a building or civil works or purchased assets for use in making taxable supplies registers for VAT previously can with effect from 11 June 2010 claim relief from tax paid on the construction of such buildings or civil works or assets within a period of twenty four months of registration. This period has now been increased from twelve months.   In a bid to lower the cost of power generation in the country, transformers having a power handling capacity not exceeding 16KVA have with effect from 11 June 2010 been exempted from VAT. Additionally, electrical energy saving bulbs, aquaria pumps, outboard engines of 10HP and inverters have also been exempted from VAT.   Key Highlights: Income Tax Act It is proposed that gratuity or similar payment in respect of employment or services rendered which is paid into a registered pension scheme not exceeding KES240,000 per annum will not constitute taxable “gains or profits” for income tax purposes.   A new definition of “deemed interest” has with effect from 11 June 2010 been introduced in regard to the current thin capitalization rules in the Income Tax Act, in a move intended to combat tax planning schemes. Interest would be deemed in the case of interest free loans at the Treasury Bill rate. However it appears that this change is impractical as no interest is deductible where loans are interest free. It also appears to be the intention of the KRA to bring “deemed interest” to the withholding tax regime, however, there are no enabling provisions that have been introduced to allow for withholding tax to be chargeable on the interest.   The definition of “related person” in reference to transfer pricing rules and regulations has with effect from 11 June 2010 been expanded to include individuals related by marriage, consanguinity or affinity who participate in the management, control or capital of two cross-border businesses which have entered into transactions with each other.   Withholding tax applicable on the leasing of aircraft engines by a resident person from a nonresident lender has been abolished with effect from 11th June 2010 (leasing of aircraft were already exempted from withholding tax).   Withholding tax applicable on leasing of assets other than land and buildings (such as equipment) by a resident person has been abolished with effect from 11 June 2010.   Additional penalties arising under the provisions of Section 72D of the Income Tax Act have been amended to clarify that they do not apply to failure to deduct and remit PAYE or failing to remit withholding tax by the due date with effect from 11 June 2010. Basic penalties of 25% and 10% respectively continue to apply with effect from 11 June 2010.   A new section 123B introduces an amnesty with effect from 11 June 2010 from taxes, penalties or interest in respect of the taxable income of any citizens of Kenya living and earning income outside Kenya and the returns and accounts for the year 2010 are submitted on or before the 30 June 2011.   Capital allowances have been provided for under the Income Tax Act for the following items: expenditure incurred by the owner or tenant of agricultural land on the construction of farmworks for the year commencing 1 January 2011 will qualify for 100% deduction of that expenditure incurred (this change is effective 1 January 2011). Capital allowances available to a concessionaire would now only be available where the concessionaire incurs capital expenditure on the purchase of machinery or on the construction of roads, bridges or similar infrastructure under a concessionairing arrangement (this change is effective 1 January 2011).   Key highlights: Miscellaneous Amendments Traffic Act (Cap 403, Laws of Kenya) With effect from 10 June 2010 the “registration book” (“logbook”) provided to owners of motor vehicles shall now be referred to as a “registration certificate”. It is proposed that with effect from 1 January 2011, where a motor vehicle ceases to be used on the road, the owner of such a vehicle shall forthwith surrender for cancellation the number plates to the Registrar of Motor Vehicles.   Government Financial Management Act Regulatory authorities and parastals will be required to remit into the Consolidated Fund 90% of surplus funds at the end of each financial year.   Retirement Benefits Act, 1997 It is proposed that with effect from 1 January 2011 the Retirement Benefits Authority be permitted to share information it receives from any person with other regulatory authorities. However, in the meantime, with effect from 10 June 2010 there have been amendments made to the Retirement Benefits (Occupational Retirement Benefits Schemes) Regulations, 2000 and the Retirement Benefits (Administrators) Regulations, 2007.   Anti-Corruption and Economic Crimes Act, 2003 To deal with the treatment of funds and assets that are recovered by the Kenya Anti Corruption Commission it is proposed that with effect from 1 January 2011 funds that the KACC recovers are paid into the Consolidated Fund and further assets recovered be surrendered to the Permanent Secretary of the Treasury.     These budget highlights were prepared by Sonal Sejpal, Legal Consultant with the Africa Legal Network (ALN ). If you have any questions or would like further information, please Pamela Nabwire on This e-mail address is being protected from spam bots, you need JavaScript enabled to view it   Share this article with others: Comments (0) Subscribe to this comment's feed Write comment Show/Hide comment form Name Email Title Comment smaller | bigger Subscribe via email (Registered users only) I have read and agree to the Terms of Usage. Add Comment