The Kenya Finance Bill 2020 introduced a new Digital Services Tax (DST) on income from services provided through the digital marketplace in Kenya at the rate of 1.5 percent on the gross transaction value. This move is threatening to bring down steps made to establish Kenya as a hub in the digital space
According to the new Act, the DST will apply to the income of a resident or nonresident person derived or accrued in Kenya from the provision of services through a digital marketplace. One will be subject to DST if one provides or facilitates the provision of a service to a user who is located in Kenya.
The introduction of DST will affect various services including streaming and download services of digital content; provision of a digital marketplace, website, or other online applications that link buyers and sellers; subscription-based media including news, magazines, and journals; and electronic data management including website hosting, online data warehousing, file-sharing, and cloud storage services among others.
The introduction of the Digital Services Tax is a set back to the dream of making Kenya a giant when it comes to online transactions and e-commerce platforms. It is also ironic and egg in the face of a government that has been pushing a “digital footprint” agenda in Kenya aimed at making Kenya a digital economy. It is an insult to their very vision that state making Kenya a “digitally empowered citizenry, living in a digitally enabled society.”
The government has a mission to make Kenya a nation where every citizen, enterprises, and organizations have digital access and the capability to participate and thrive in the digital economy. How can this mission be realized if the same authority is trying to kill the same drivers who are supposed to make the mission come to life?
While talking about turning Kenya into a fully digital economy, President Uhuru Kenyatta said “Kenya is one of the world leaders in driving financial inclusion through the use of digital finance solutions such as M-PESA, Mula, PesaLink, and Pesapal. The adoption of such innovations is facilitating transactions and spurring trade for corporations, small and medium enterprises (SME’s), and individuals. This in turn translates to improved and efficient business environments, increased accessibility, connectedness, and better standards of living.” The President went ahead to acknowledge the power of e-commerce platforms in enhancing economic growth in Kenya.
The introduction of DST is going to create a very unfair playing field between Kenyan e-commerce platforms and those not from Kenya (non-resident). Kenyan e-commerce platforms, on top of giving affordable products and services to Kenyans, create employment opportunities for Kenya. Most Kenyan e-commerce platforms sell goods and products to other businesses. They are just a medium that enables the transaction. The individual businesses that use these Kenyan e-commerce platforms pay taxes in their capacity. Most of these e-commerce platforms only make cash through commissions.
The winners in this DST move are e-commerce platforms outside Kenya such as Amazon, Facebook, and Instagram among others. These non-resident e-commerce platforms do not create employment opportunities for Kenyans, they do not pay taxes to the Kenyan government and they do not contribute to the Kenyan economy in any way. In other words, DST is set to kill Kenyan e-commerce minds for foreign giants that add no value to thrive.
The government of Kenya, if it means well and purposes to make Kenya a digital economy should working towards exempting e-commerce players from taxes such as minimum tax. Resident e-commerce platform owners should be exempted from the Digital Service Tax.
There is a need for Kenya to consider investment in technology companies the same way it considers investment in manufacturing. We should not use laws to kill businesses and innovation.