Kenya proposes 1.5% digital tax and higher levies on mobile services

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May 13, 2024
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2 min read
KENYA-NATIONAL-TREASURY-BUILDING
  • Kenya's national treasury has proposed a 1.5% digital tax on local platforms that offer services such as online jobs, rentals, food delivery, and ride-hailing, subject to parliamentary approval. 
  • Njuguna Ndung'u, the national treasury cabinet secretary, has proposed amendments to the Finance Bill 2024 that will require foreign companies with a presence in Kenya to pay digital service tax. 
  • Meanwhile, foreign companies such as Amazon, Alibaba, and Netflix, which operate digitally without a physical presence in the country, will be required to pay the Economic Significant Presence Tax, which is 20% of their total income. 

In addition, the new bill raises the tax on mobile airtime and data rates from 15% to 20% as part of the government's efforts to raise $2.5 billion in taxes in the fiscal year beginning in July.

Furthermore, it intends to increase the excise duty on mobile money transfer fees and cash transactions in banks, money-transfer firms, and other financial service providers from 15% to 20%.

Telcos are likely to raise transfer and withdrawal fees to offset the government's increased tax burden. 

This could lead Kenyans to return to cash transactions, despite Statista's forecast that the country's Digital Banks market will see a significant increase in Net Interest Income, reaching US$19.69 million by 2024.

Meanwhile, residents who operate online platforms for exchanging goods and services are exempt from the digital services tax because they already have to pay a 30% corporate income tax.

Kenya's digital services tax took effect on January 1, 2021, and applies to the sale of e-books, films, music, games, and other digital content. The Kenya Revenue Agency expected to collect Sh13.9 billion ($106 million) from the tax within three years of its implementation. 

The Kenya Revenue Authority (KRA) announced plans to launch a new transfer pricing database in April 2024, allowing its agents to review multinational company transactions for tax evasion and compliance.

Amid this development, which places more financial burden on Kenyans, the African Development Bank raised an alarm in its macroeconomic performance and outlook for 2024 that an increase in the cost of living in some African countries could lead to social unrest.

Recently, African countries have introduced taxes in the digital sector. Ghana disclosed plans in April 2024 to tax resident Ghanaians' foreign incomes to close a significant revenue gap left by the cancellation of the value-added tax (VAT) on electricity earlier this year. 
Last week, Nigeria revealed plans to reintroduce telecom taxes and other fiscal policies in exchange for a $750 million loan from the World Bank.

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