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{
    "id": 1079720,
    "url": "https://info.mzalendo.com/api/v0.1/hansard/entries/1079720/?format=api",
    "text_counter": 178,
    "type": "speech",
    "speaker_name": "Hon. (Ms.) Gladys Wanga",
    "speaker_title": "",
    "speaker": {
        "id": 590,
        "legal_name": "Gladys Atieno Nyasuna",
        "slug": "gladys-atieno-nyasuna"
    },
    "content": "The reason we are defining “Infrastructure Bond” in the Income Tax Act, is to clarify the types of bonds that can qualify for exemption from income tax or interest earned on them. There is also a move to define “Digital Service Tax” which was introduced last time. It is important because business is happening digitally because of this COVID-19 period. The Bill, therefore, seeks to define the term “Digital Market Place” which means an online platform which enables users to sell or provide services or goods to other properties or users. A lot of transactions are currently going on digitally. One of the amendments that have been made or that is being proposed is not just to talk about selling online, but also to introduce the term “electronically”. A company like Netflix is not selling online, but electronically. We are all watching Netflix and so on. If you just say “selling online or over the internet”, then you lose out companies such as Netflix. More importantly, the Bill has provided an amendment to explicitly provide that the Digital Service Tax will only be payable by non-resident persons. I saw that there was a lot of fear among our local young emerging business people saying that now digital tax is being levied on us, but this deal has clearly outlined the fact that the Digital Service Tax will only be paid by non- residents. If you are Amazon, Netflix and others operating outside, you will pay the Digital Service Tax. Those who are operating locally are already in the view of the KRA and will be charged the local taxes as they accrue. The Bill also seeks to repeal the current provision on pin capitalization rules based on debt to equity ratio and substitute it with interest restrictions based on epitaph. This is a very important Clause because if related parties lend each other money; if Company X is related to Company Y and Company Y lends Company X money and charges very high interest rates of for example 30 to 40 per cent… Any interests paid currently are deductible when you were calculating your profits. Right now, the provision that is being made is such that the interest deductible will only be allowable up to 30 per cent if you are dealing with related parties. Only up to 30 per cent of interest will be allowed to be deducted from the amount for your profits. The only exemption that the Committee is proposing to make is for institutions where interest is their business. These are banks, any institutions registered under the Banking Act and Micro Small and Medium Enterprises. This is so that MSMEs are not adversely affected by this rule. The Bill introduces a country by country reporting requirement on Kenyan headquarters multinationals referred to in the Bill as the ultimate parent entity. Kenyan headquarters multinationals are organisations such as KCB and Equity but are headquartered here in the country. So, this new reporting requirement states that you will report on your activities here and other countries. The reason is so that in the event you are moving profits to other countries for purposes of tax planning, KRA will be able to tell. If your profits are disproportionately higher elsewhere, and yet here you are declaring them lower, then we can catch those who are tax planning. In order to address the issue of investment allowance deduction, the Bill proposes to amend the Second Schedule of the Income Tax Act in order to change the basis of calculating the investment allowance from reducing balance to a straight line. We are trying to make sure that we simplify computation of capital allowances that are given to investments and especially to reduce the period for recovery of capital costs. So, if you are supposed to recover your capital costs in three years and we do it on a straight line, you are going to do it in a shorter period than if it is on reducing balance because you are going to carry it for a longer period of time. There is the whole definition of the term “permanent establishment” which is to help with knowing when your fixed place of business is considered to be in Kenya. If you look at Clause The electronic version of the Official Hansard Report is for information purposesonly. A certified version of this Report can be obtained from the Hansard Editor."
}