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Petroleum, mining expat contractors face steeper taxes

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Petroleum, mining expat contractors face steeper taxes


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Treasury Cabinet Secretary Ukur Yatani. FILE PHOTO | NMG

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Summary

  • Expatriate contractors in the petroleum and mining sectors face steeper taxes if Parliament passes a Bill that seeks to nearly double the duty charged on their service fees.
  • The Finance Bill 2021 proposes to increase the rate of withholding tax (WHT) upon payment of service fees to non-resident subcontractors operating in the extractive industries from 5.625 percent to 10 percent.

Expatriate contractors in the petroleum and mining sectors face steeper taxes if Parliament passes a Bill that seeks to nearly double the duty charged on their service fees.

The Finance Bill 2021 proposes to increase the rate of withholding tax (WHT) upon payment of service fees to non-resident subcontractors operating in the extractive industries from 5.625 percent to 10 percent.

This would apply to non-resident subcontractors in the petroleum and mining sectors who do not have a Kenyan permanent establishment (PE). Those with a PE are currently required to pay tax under the self-assessment regime applicable to resident companies.

“This move is aimed at increasing tax collection from the extractive sector since a large portion of technical services is normally subcontracted to specialist service companies” consultancy firm, Deloitte said in an analysis.

“Although the increase is significant, the rate is still lower compared to the WHT rates generally applicable to other non-resident service providers” it added.

At the same time the Bill proposes to lower the rate of withholding tax on management fees paid by non-resident subcontractors to 10 per cent from the current 12.5 per cent.

“This proposed amendment removes the confusion that existed between the scope of service fees and management, training and professional fees paid to subcontractors. This is because service fees is defined broadly and appeared to include management, training and professional fees so long as these were paid to a subcontractor” Deloitte said in its analysis.

“The proposed amendment aligns the rates applicable to such fees and removes the differentiation,” the consultancy further said.

Kenya has in the past decade stepped-up exploration of its mineral resources to supplement revenue from agriculture and other economic sectors.

The State-backed Mineral Rights Board earlier this year estimated that Kenya could earn up to Sh719.4billion from its untapped mineral sector or 12 per cent of its gross domestic product (GDP).

The sector currently contributes less than one per cent to the GDP.

According to the Economic Survey, total earnings from mineral production declined 5.5 per cent in 2019 to Sh29.1 billion from Sh30.8 billion in 2018.



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