Online Traders To Be Taxed As Kenyan Government Seeks To Bridge Budget Deficit

In a bid to boost revenue and bridge the USD 6 Bn budget deficit, Kenya Revenue Authority (KRA) has been given a go ahead to start taxing revenues generated by e-commerce companies.

Rotich who has paved way for the government agency to tax digital firms in his speech while releasing the 2019/20 FY budget promised to introduce tax measures to address the challenges that have made it hard to tax digital markets.

“Digital marketplace means a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means,” states the Finance Bill 2019.

The proposed amendments to the Income Tax Act have included earnings obtained through online marketplaces. The move will affect many global firms few among them being as Facebook, Uber, Google and Amazon.

The Income Tax Act stipulates that whether a firm is resident or non-resident, the earnings collected by an individual or company from Kenya should be taxed.

For a long time, online traders have been able to escape paying taxes but Rotich’s directive is just about to change the narrative. In his speech earlier, the Treasury CS said he is aiming to get USD 363 Mn from new tax measures to finance his USD 30 Bn 2019 budget.

Information from Communication Authority of Kenya (CAK) indicates that mobile commerce transactions increased by 11 per cent to 587 million in the three months ended December 2018.

“There were 586.9 million mobile commerce transactions which were valued at USD 18 Bn trillion while the value of person-to-person transfers amounted to USD 7 Bn,” explained the CA.

The government is leveraging on these online transactions to finance the budget that apparently is USD 2 Bn more than Uganda’s, Tanzania’s and Rwanda’s combined.

It is still not clear how the digital taxing will be achieved as the proposed amendments to the Finance Bill do not outline how tax collection will be done.

Taxing digital firms has proven to be close to impossible across the globe. This is due to the complexity of online business models. The hard truth is that most online businesses like Uber are structured in ways that transcend national boundaries.

It may be easier to tax digital service companies that have a physical presence in Kenya as their income can be easily tracked but as for the digital firms that operate across national boundaries, pinning them down from a taxation perspective will be an up hill task.

Experts argue that unless there is global coordination instituting a global tax-sharing system for online businesses, the idea is far from being practical.

Featured Image Courtesy: Mum Loves Tech