The Kenyan government has made an important change to its tax policy. From May 30, 2024, goods and services for export will no longer be charged Value Added Tax (VAT). This is meant to make Kenyan products more able to compete in global markets.However, the government is also making VAT rules stricter for goods and services sold within Kenya. All goods and services, whether imported or made locally, must now be charged VAT with no exceptions.
This means that all products, from crops grown on farms to items on store shelves, will have VAT added. The policy states that no one can get an exemption or lower VAT rate for any reason. But exported goods and services will be taxed at a 0% VAT rate to help Kenyan businesses sell competitively overseas.VAT will be charged at every step from production to final sale, including at retail stores. This reverses a previous policy that made exported services subject to the standard 16% VAT rate starting in July 2022.
These tax changes come after about 10 years of the International Monetary Fund (IMF) telling Kenya to remove blanket tax exemptions on consumption. The IMF said Kenya should tax all goods but also have programs to help poor households cope with higher costs.For many years, there was disagreement between the Kenya Revenue Authority (KRA) and businesses over how to tax exported services from Kenya.
The new policy also states that all income earned in Kenya will be subject to corporate tax, no matter the source – business activities or other sources. This is part of efforts to increase tax revenues after years of declining tax-to-GDP ratios.Critics argue the broad VAT will place a bigger burden on low-income families by increasing costs of essential goods and services. But supporters believe a more uniform and comprehensive tax system will distribute the tax burden more fairly and improve Kenya’s financial position.
Kenyan exports will no longer face VAT to boost competitiveness, but stricter VAT rules will increase costs for domestic consumption as part of tax policy reforms urged by the IMF over the past decade. The changes aim to expand the tax base and increase revenues.
By Newshub