The Finance Bill, 2024 (“the Bill”) was presented before the National Assembly on 9th May 2024. The Bill proposes for various amendments to various tax related laws including the Income Tax Act (Chapter 470, Laws of Kenya) (ITA), the Value Added Tax Act, 2013 (VATA), the Excise Duty Act, 2015 (EDA), the Tax Procedures Act, 2015 (TPA), the Miscellaneous Fees and Levies Act, 2016 and the Data Protection Act, 2019. These amendments proposed by the Bill aim to widen the tax base and meet the projected budget revenues for the Financial Year 2024/2025.
However, while the Bill is purely on financial matters and does not directly cover issues to do with environmental conservation, the proposed amendments fronted by the Bill on various tax related laws might have either a direct or indirect impact on environmental conservation in Kenya.
This blog article therefore delves into the various impacts that the proposed Finance Bill 2024 might have on environmental conservation, either directly or indirectly.
Proposed amendments to the Income Tax Act (Chapter 470, Laws of Kenya)
The Finance Bill 2024 expands this definition of “digital content monetization” from what is in the Finance Act 2023 to include all creative works and shared materials not exempt under the Act. Additionally, the Bill proposes a 5% withholding tax on digital content payments for resident persons and 20% for non-resident persons. These measures aim to widen the tax net, recognizing the growing content creation sector and aligning with the policy objective to expand the tax base and increase tax revenue as a share of GDP.
This amendment will definitely impact environmental conservation, in that: The taxation on digital content creators might discourage some from producing content, including those focused on environmental awareness and advocacy. This reduction in environmental-themed content could limit public education and advocacy efforts. Additionally, the allocation of tax revenue generated from digital content monetization to environmental conservation projects is not guaranteed. There is a risk that these funds may be diverted to other areas, reducing financial support for conservation initiatives. Moreover, the increased tax burden on content creators may limit their ability to invest in eco-friendly content production, potentially reducing the overall impact of environmental advocacy efforts.
On the other hand, the Bill proposes an introduction of a Motor Vehicle Tax (MVT) at 2.5% of a vehicle’s value, determined by make, model, engine capacity, and year of manufacture, payable upon insurance issuance with a minimum of KES 5,000 and a maximum of KES 100,000. Insurers must collect and remit MVT within five days, facing penalties for non-compliance.
The impact that the MVT will have on conservation is that the proposed MVT will potentially discourage the use of older, less fuel-efficient vehicles, thereby reducing emissions. The tax revenue generated could be allocated to environmental projects, supporting conservation initiatives and sustainable development. Additionally, by imposing additional financial burdens on vehicle owners, MVT may limit the funds that the government can allocate to eco-friendly upgrades or investments, such as purchasing electric vehicles.
Proposed Amendments to the Value Added Tax Act, 2013 (VATA)
The key proposal and/or amendment to VATA by the Bill is the removal of the Tourism sector VAT exemptions. The Bill seeks to remove the following VAT exemptions that had been introduced to boost the tourism sector:
- Taxable goods for direct and exclusive use for the construction of tourism facilities, recreational parks of fifty acres or more, convention and conference facilities upon recommendation by the Cabinet Secretary responsible for matters relating to recreational parks.;
- Specially designed locally assembled motor vehicles for transportation of tourists, purchased before clearance through Customs by tour operators upon recommendation by the competent authority responsible for tourism promotion;
- Taxable services for direct and exclusive use for the construction of tourism facilities, recreational parks of fifty acres or more, convention and conference facilities upon the recommendation by the Cabinet Secretary responsible for matters relating to recreational parks.
The exemptions had been introduced to incentivize the growth of the tourism sector which is a key player in environmental conservation as Kenya’s tourism sector is mainly hinged on Kenya’s biodiversity.
The sector has continued to grow every year with more tourists arriving in Kenya and the removal of the exemptions may discourage further investments in the tourism sector which in turn will lead to a drop in the investments on environmental conservation as the Tourism sector greatly depends on Kenya’s biodiversity.
Another proposed amendment to VAT by the Bill is that it proposes a raft of changes in various sectors. In the aviation sector, the Bill proposes to delete the VAT exemption provided for: 8802.30.00-Aeroplanes and other Aircraft of unladen weight exceeding 15,000 kgs; 8802.60.00- Spacecraft (including satellites) and suborbital and spacecraft launch vehicles; Hiring, leasing and chartering of aircrafts excluding helicopters of tariff numbers 8802.11.00 and 8802.12.00; and Direction-finding compasses, instruments and appliances for aircraft.
This VAT exemption for the aviation sector is to encourage acquisition of modern aircraft and airplanes primarily due to safety concerns associated with acquiring older aircraft or airplanes. The implication of this amendment on environmental conservation is that conservation organizations that do air rescue and movement of wildlife vets will spend less in acquiring modern aircraft to help in their conservation efforts. The organizations can now also spend less to hire, lease and charter aircraft.
Proposed Amendments to the Excise Duty Act, 2015 (EDA) and the Tax Procedures Act, 2015 (TPA)
The proposed changes and/or amendments to the Excise Duty Act, 2015 (EDA) and the Tax Procedures Act, 2015 (TPA) themselves wouldn’t directly affect the environment and sustainability. This is because the EDA deals with excise duties, which are taxes levied on specific goods produced, manufactured, or imported within a country. The TPA on the other hand outlines procedures for administering various tax laws, including excise duty.
However, in as much as these Acts don’t directly target environmental concerns, the Kenyan government could potentially use them to indirectly influence sustainability through the excise duty system. This can be done through the introduction of green taxes where the government could introduce higher excise duties on environmentally harmful goods like plastic bags, single-use plastics, or high-polluting vehicles. This would increase their price, discouraging consumption and encouraging people to choose more sustainable alternatives.
Proposed Amendments to the Miscellaneous Fees and Levies Act, 2016.
The Bill aims to introduce an Eco Levy on specified goods either manufactured domestically or imported into Kenya. This levy is intended to address and mitigate the environmental damage caused by these goods. The specific items subject to this levy are detailed in the Fourth Schedule.
The introduction of the Eco Levy aligns with Environmental, Social, and Governance (ESG) principles and global environmental protection initiatives. This levy ensures that manufacturers and importers bear the financial responsibility for the environmental impact of their products. Consequently, the added costs will likely be passed on to consumers, resulting in higher prices for the affected goods. This measure encourages businesses to adopt more sustainable practices while promoting environmental accountability.
Conclusion.
In conclusion, in as much as the Bill is purely on financial and tax related matters. The proposals for amendment by the Bill will definitely have either a direct or indirect impact on environmental conservation. It is therefore prudent that the implementation of the various provisions of the Bill are well monitored so as to prevent a plough back on the key strides that have been made on environmental conservation in Kenya.