Digital service tax aimed at tech giants not Kenyans:CS Mbadi » Capital News

NAIROBI, Kenya Nov 15 – The National Treasury has dispelled assertions that the proposed introduction of a 15 percent tax on social media and internet services target local users saying owners of those platforms are the ones affected.

The Tax Laws (Amendment) Bill, 2024, sponsored by majority leader Kimani Ichung’wah is currently before the National Assembly proposing amendments to the Income Tax Act to introduce significant economic presence tax.

It shall be payable to non-residents through a business carried out over a digital marketplace whose income from the provision of services is derived from or accrues in Kenya.

Appearing before the National Assembly Finance Committee,Treasury Cabinet Secretary John Mbadi insisted that multinational companies ought to pay for significant economic presence tax as they rake billions through digital infrastructure laid out by the government.

“They are saying Mbadi or government is raiding social media space. Further from the truth, we are saying, if you are doing business here and you are out there, you must leave part of the proceeds here to benefit this economy, because we have laid the infrastructure for you,” he said.

Mbadi stated that it would be unfortunate for the Mwananchi to pay taxes in the social media space yet huge organizations

“I have had people talk about social media space, they say,These people are just creative, which is true. Our people are very creative. And people who are out there having their platform here, why would we just tax our Kenyans who are using that platform, but the owners of the platform,” the Treasury CS said.

The Treasury CS explained  the move is not aimed at overtaxing Kenyans but maintain an the digital infrastructure by ensuring the money is injected into the economy through taxes.

“So significant economic presence, tax should be supported. So should be the minimum top of tax because these are multilateral, multinational organizations, huge organizations with high turnovers of 100 billion a year, and you find that they pay less than 15% as tax,”Mbadi remarked.

The Treasury has unveiled a legislative proposal to reform the taxation of digital services in Kenya, introducing a 6 percent Significant Economic Presence Tax (SEPT) aimed at broadening the tax base.

The new proposal targets ride-hailing platforms, digital food delivery companies, and online freelance jobs, replacing the current Digital Service Tax, which stands at 1.5%. The new 6% rate would apply to non-resident entities earning income through digital marketplaces in Kenya.

Treasury stated that the SEPT is intended to ensure foreign companies generating revenue through digital services in Kenya are taxed equitably, aligning with international standards.

By targeting significant economic activities conducted by non-resident entities, the government aims to boost revenue collection from the expanding digital sector.

The proposed legislation also includes a Minimum Top-Up Tax to address tax base erosion among multinational enterprises (MNEs).

This measure sets a minimum effective tax rate of 15% for companies with a consolidated annual turnover exceeding 100 billion shillings. Companies paying less than this rate will be required to top up their tax contributions to meet the threshold.

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