Update on the Finance Act, 2022

The Finance Act, 2022 (the Act) was signed into law by the President on 21 June 2022, published on 23 June 2022 and gazetted on 08 July 2022. The Act has amended various tax laws including: the Income Tax Act (ITA), The Value Added Tax Act, 2013 (VAT Act), Excise Duty Act, Tax Procedures Act, 2015 (TPA), and the Miscellaneous Fees and Levies Act. The Act also provides for other miscellaneous amendments to the Insurance Act, Retirement Benefits Act, Capital Markets Authority Act, among others.

The Act made several changes with the intention of increasing revenues and bringing tax law into line with government development aims. Examples include the implementation of a 15% tax rate reduction for businesses running emission trading systems or carbon market exchanges that have been approved by the Nairobi International Financial Centre Authority. The first ten years’ lower rate will coincide with the opening of the Nairobi International Financial Centre (NIFC).

The Act has also made a few changes intended to ensure equity in the application of tax laws for entities engaged in similar business. These changes include excluding from the thin capitalization rules entities licensed under the Hire Purchase Act and the Microfinance Act, non-deposit taking institutions engaged in lending and leasing, businesses engaged in the manufacture of human vaccines, holding companies subject to the Capital Markets Act, and C corporations. Additionally, the Act increased capital gains tax from 5% to 15%. The goal of this action is to bring Kenya’s CGT rate into line with regional CGT rates.

The Act has also amended the Capital Markets Act to expand the spectrum of persons who can act as investment advisors. This is in a bid to address the shortage of experienced investment advisors in the country. Investment advisors will now not be limited to only incorporated entities that have met the minimum share capital but to any legal entity as may be prescribed in the Regulations. Additionally, where any person (not necessarily a director as was the case before) within the legal entity satisfies the minimum licensing requirements, the entity shall be approved as an investment advisor.