Kenya will start levying new tax on digital markets under a new law signed by the president early in November. The Finance Act seeks to broaden the Income Tax Act net to include income accruing through a digital market place.
The law defines the digital marketplace as “a platform that enables direct interactions between buyers and sellers of goods and services through electronic means.”
In addition, a similar change has been made to the VAT Act making digital market services subject to value-added tax.
It’s not clear yet who will be affected—or how the tax will be imposed. The treasury still has to issue new guidelines on how the tax will be implemented. But it appears that potential targets include online taxi-hailing platforms. If experiences elsewhere are anything to go by, Kenya’s move to tax online commerce could put it on a collision path with Western governments and multinationals. One of the market leaders, Uber, has already warned the government that such a move could result in trade wars and retaliatory tax actions by the US.
Like France and India before it, Kenya is trying to get its cut of every digital transaction within its territory. The argument is that it is only fair to tap into the revenue accrued from the digital economy taking place within their territory. Companies registered elsewhere and operating in their territory earn income from the same but do not pay taxes, the argument goes.
But this is easier said than done. In 2016 India imposed digital taxes on technology companies involved in digital advertising. In 2018 the country introduced a provision requiring companies to pay tax on domestic income accrued from a digital platform. The provision requires non-resident big tech companies to pay direct taxes on domestically earned income.
In retaliation, the US conducted an inquiry and capped the number of Indian foreign workers. The move was detrimental to India.
Earlier this year France imposed a digital tax on big tech multinational companies. It required them to pay a 3% tax on total annual revenue generated. This sparked a trade war with the US which saw this as double taxation of its companies and their partners. But two months later, the two countries agreed on a compromise. France said it would tax big tech companies but scrap the tax as soon as the Organisation for Economic Cooperation and Development comes up with a way to properly tax tech companies. And it agreed to refund any over-payments that might occur in the meantime.
Culled From Quartz Africa
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