Below, please find issue 4 of ENS' Kenya in brief, a snapshot of the latest tax developments in Kenya.
Corporate commercial
Welcome to the fourth issue of ENS' Kenya in brief, focusing on the latest legal and regulatory updates across Kenya's corporate commercial, real estate, and banking and finance industries.
- Corporate and Commercial
The County Licensing (Uniform Procedures) Act, 2024
The principal objective of the County Licensing (Uniform Procedures) Act, 2024, which shall become effective after six months from date of Gazettement (28 June 2024), is to establish standard uniform procedures for licensing by county governments in order to eliminate inconsistencies and reduce the administrative burden faced by businesses operating in multiple counties, who previously had to navigate different rules and fees in each county. By creating uniform licensing procedures, the law seeks to address issues like multiple licenses and double levies, making the licensing process more cost-effective and transparent. It also ensures public participation in setting licensing fees and mandates counties to move toward electronic license applications for efficiency. The law is a welcome milestone since it aims to create the certainty that businesses need to ensure they can plan around the set government policies.
- Banking and Finance
Supreme Court Decision on the interpretation of Section 44 of the Banking Act The Supreme Court in its decision in Supreme Court Petition Number E005 of 2023 Stanbic Bank Kenya Limited versus Santowels Limited rendered on 28 June 2024 held that banks and financial institutions regulated under the Banking Act are barred from increasing interest rates on loans without the approval of the Cabinet Secretary responsible for Finance. Section 44 of the Banking Act states that "No institution shall increase its rate of banking or other charges except with the prior approval of the Cabinet Secretary."
The Supreme Court acknowledged conflicting interpretations of section 44 of the Banking Act regarding whether banks need Cabinet Secretary approval to raise interest rates on loans. The court clarified that:
- The term "rate of banking" under section 44 includes interest rates charged by banks on loans and facilities.
- The repeal of section 39 of the Central Bank of Kenya Act and section 33B of the Banking Act did not fully liberalize interest rates. These sections only addressed interest rate caps, while section 44 plays a distinct, complementary role, ensuring that banks are regulated to prevent the exploitation of loan consumers and to maintain reasonable interest rates.
The implication of this judgement is that it renders increases which have not been approved by the Cabinet Secretary unenforceable.
ESG: The Kenya Green Finance Taxonomy
The Central Bank of Kenya (CBK), on 12 April 2024, published the Draft Kenya Green Finance Taxonomy (KGFT) which aims to provide guidance to financial institutions, investors and other market participants in making informed green investment or financing decisions by identifying and promoting environmentally friendly options. It serves as a tool for market participants to classify whether specific activities are "green" or environmentally sustainable, in line with internationally recognised standards. This is in line with Kenya's commitment to global climate goals.
Currently, there is no regulation in Kenya requiring taxonomy alignment and therefore the use of the KGFT will be voluntary ahead of any mandatory regulation However, financial institutions may be encouraged to begin aligning their portfolios with the KGFT in advance to help achieve the country's climate objectives. ENS | Kenya will continue to monitor the developments relating to the KGFT and regulations in the ESG sector and provide updates. - Tax
Finance Bill 2024
The Finance Bill 2024 ("the bill") was introduced to the National Assembly on 9th May 2024. The Bill sought to implement major tax reforms aimed at improving tax compliance and expanding the tax base. Notable proposals included the introduction of a motor vehicle tax, introduction of withholding tax on goods supplied to public entities, repeal of provisions on Digital Service Tax and introduction of Significant Economic Presence Tax, certain contributions to medical funds and housing levy being tax-deductible expenses, adjustments to VAT registration thresholds, the imposition of VAT on bread and certain financial services, the introduction of a minimum top-up tax for multinational groups and various adjustments on excise duty.
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