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{
    "id": 1438673,
    "url": "https://info.mzalendo.com/api/v0.1/hansard/entries/1438673/?format=api",
    "text_counter": 161,
    "type": "speech",
    "speaker_name": "Prof. Njuguna Ndung’u",
    "speaker_title": "The Cabinet Secretary for the National Treasury and Economic Planning",
    "speaker": null,
    "content": "Advanced pricing agreements have emerged as a valuable tool for preventing tax disputes related to transfer pricing of cross-border transactions. In this regard, I propose to empower the commissioner to enter into advanced pricing agreement with taxpayers engaged in transactions with related entities. To attract international financial investors in Kenya and reinforce Kenya's position as a regional financial hub, I propose to reduce the rate of capital gains tax from 15 per cent to 5 per cent for firms that are certified by the Nairobi International Financial Centre of Origin. A transfer of property between an individual and an entity where the individual holds 100 per cent shareholding does not constitute a gain. In this respect, I propose to exclude from capital gains tax this kind of transfer. The digital services tax was introduced to prevent tax-based erosion occasioned by migration of traditional businesses from physical shops to online platform that is not visible by the commissioner for tax purposes. It has been noted that the design of the tax does not capture all taxpayers thus leading not only to loss of revenue, but also to unfairness in taxation. For this reason, and in line with international best practice, I propose to amend the Income Tax Act to replace the digital services tax with the significant Economic Presence Tax. To expand the tax base and make our country self-reliant, I propose to introduce an annual motor vehicle tax at the rate of 2.5 per cent of the value of the vehicle subject to minimum amount of Ksh5,000. Let me now turn to gains. There are substantial gains for Kenyans. Currently, the tax- free amount on subsistence allowance paid to employees in the private sector for a period spent outside the usual place of work while on official duties is capped at Ksh2,000 per day. This is quite low considering the inflation that has occurred over the years.To cushion employees in the private sector from the high cost of living, I propose to review the threshold to an amount not exceeding 5 per cent of the employees' monthly gross earnings. Hon. Speaker, the Affordable Housing Levy and Pay-as-you-Earn (PAYE) are calculated from the same base, leading to double taxation. To address this, I propose to make the Housing Levy a deductible expense. This means that there is tax savings for Kenyans and, therefore, affording Kenyans more money in their pockets. In order to encourage Kenyans to continue constructing their own houses, I propose to increase the limit of interest payments that qualify for mortgage relief from Ksh300,000 to Ksh360,000 per annum. Let me turn to amendments to the Value Added Tax (VAT). I will now highlight the amendments to the Value Added Tax. Currently, the registration of Value Added Tax is a requirement for a person who makes taxable supplies of Ksh5 million or more. This threshold was last reviewed in 2007. In recognition to the effects of inflation over the years and to enhance efficiency in tax administration, I propose to increase the threshold to Ksh8 million. Hon. Speaker, the VAT Act allows taxpayers making both taxable and exempt supplies to claim input tax, where the proportion of exempt supplies is less than 10 per cent. This has led to tax planning and hence loss of Government revenue. To address this, I have proposed the removal of the threshold so that only the input tax relating to taxable supplies are deductible. In support of the Government's effort to combat malaria, I propose to remove VAT on mosquito repellents and raw materials that are used in the manufacture of repellents. This will encourage local production of the repellents. Tax expenditure was estimated at Ksh393.6 billion, or about 2.9 per cent of GDP for the year 2022. Of this amount, VAT tax expenditure amounted to Ksh248.3 billion, or what is 63.1 per cent of the total estimate of tax expenditure, which is a large erosion of the VAT tax base. Tax expenditure creates avenues for revenue leakage and thus denying Government the revenue to support key priorities that benefit majority of the citizens in Kenya. 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."
}