Kenya’s Finance Act, 2022 was assented into law on 22 June 2022 and gazetted on 8 July 2022. Despite this gazette date, the provisions of this Act came into effect on 1 July 2022.
The Act has introduced amendments to various tax statutes including the Income Tax Act, Value Added Tax Act (“VAT”), Excise Duty Act, Tax Procedures Act and the Miscellaneous Fees and Levies Act.
One of the most important changes that the Act has effected is the change of the treatment of services that are exported from Kenya. These services were previously exempted from VAT, however, in terms of the Act, even exported services will now be subjected to the standard rate of VAT, being 16%. This excludes the exportation of taxable services in respect of business process outsourcing, which are now zero rated.
The constitutionality of these new tax measures is already being challenged, given that they came into effect before the Bill was published. The effect of this is that there was no opportunity for public participation on the Bill. The litigants are pushing for all services rendered to foreign entities to be zero rated. We will continue to follow the developments of this case.
In the interim, and whilst the Act remains in effect, all services rendered in Kenya will be subject to the standard rate of VAT, in terms of the Act.
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