Following the recent move by Kenyan Revenue Authority to tax tech companies in the country, Google warns that the Kenyan Government risks a trade war if they carry on with their proposed tax in the country.
The Kenyan parliament last week stated that it would begin charging VAT and Income tax on income-generating apps and tech companies in the country.
Google insisted that the move flouts the international tax agreement which states that multinational companies should pay income tax in the country where their services are created, rather than where they are consumed.
According to a report, Google Public Policy and Government Relations leader, Michael Murungi insisted that the new bill would set Kenya on an unfavourable collision course similar to the current events in France.
Around the world, most tech companies, pay little to no tax where they do not have a large physical presence.
Maurice Oray, KRA’s Corporate Policy Deputy Commissioner earlier stated that any foreign company whose apps are in use in Kenya should be taxed.
Kenya doesn't seem to be alone as some countries have been looking a little closer into this trend. The British Government is proposing digital taxes against 2020.
France on their part had earlier argued before the EU that taxing companies should not be based on physical presence alone, but also on digital presence. Although the bill did not pass at the EU, France defied threats from the US to impose a 3% income tax on digital companies with global annual revenues of €750 million and €25 million in France.
On the other hand, the US-based companies seem to have the backing of the US government which has ordered a legal inquiry that could result in a trade war with France.
Despite making large amounts of profits outside their home countries, most of these multinational tech giants have remained under the wings of the International Trade Tax Agreement (PDF) and rarely pay income tax on the profits they make from foreign countries.
This is probably done to reduce costs and make more money. However, given that most businesses --new or old -- are going digital and require little to no physical presence to function, laws regarding taxes should be flexible to accommodate these changes.
Even without much physical presence, some of these digital companies have a large market in Africa but still, they do not pay taxes to the various governments of these large markets.