Experts welcome Kenya’s plan to increase digital tax on foreign firms

NAIROBI, Kenya, April 12 – The Government’s plan to double the digital service tax on multinational companies from 1.5 percent to 3 percent has been lauded as a timely move by experts who said that it will boost Kenya’s fiscal consolidation.

Under the financial bill which was tabled by Gladys Wanga, Treasury proposed to increase the rate to 3 percent of the gross value of online transactions for firms such as such as Amazon, Netflix, Twitter, and PayPal in the financial year starting July.

“The Third Schedule to the Income Tax Act is amended… by deleting the expression ‘one-point-five percent’ appearing in paragraph 12 (digital service tax rate) and substituting, therefore, the expression ‘three percent,” Treasury Cabinet secretary Ukur Yatani wrote in the Finance Bill 2022.

The Institute of Certified Public Accountants of Kenya (ICPAK) has lauded the move saying the digital tax will enable the government to maximize tax on firms who have not been accounting for tax on services consumed across digital platforms.

“The move is in line with what the rest of the world is doing, most Western countries have an average rate of 3 percent, It Is fairly standardized and its aimed at mobilizing more revenue from multinational companies who in the past have not been accounting for tax on services consumed on digital tax,” ICPAL committee member Mokaya Karaya said.

Further, the accountants noted that the requirement that multinational companies share data on revenue, profits, and taxes in Kenya will help to curtail the shifting of taxes to other jurisdictions.

Previously, many firms used complicated tax planning which saw a shift in profit from where it(profits) is generated to other jurisdictions where tax is fairly low or nil.

“This has had a big impact on developing countries which have hardly had to net tax from the multinational corporations. To ensure developing countries like Kenya get a fair share of tax, this law is going to enable  KRA to get information that can enable them to audit and ensure there is no tax evasion which enables MNCs to reduce their share of tax payable to Kenya and shift them to other jurisdictions,” he added.