Tax for online traders : The Standard

Players in the e-commerce sector will soon start paying taxes as Treasury seeks to draw more revenue from the country’s ICT sector. In his budget speech yesterday, Treasury Cabinet Secretary Henry Rotich said the Government has amended the income tax code to bring e-commerce providers into the tax bracket. The new tax measures are also likely to impact Small and Medium Enterprises (SMEs) as well as individuals selling their wares on social media sites such as Facebook and Instagram as the Government looks to increase revenue collection from the growing sector. “The digital economy is fast evolving, thereby posing challenges to taxation,” said Rotich.

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“This is due to the unparalleled reliance on intangibles, the massive use of data, the widespread adoption of multi-sided business models and the difficulty of determining the jurisdiction in which value creation occurs.” According to the CS, this has led to erosion of the country’s tax base and a decline in tax revenue. Earlier this year, a report by financial analysts at Citibank estimated Kenya’s e-commerce market could be worth Sh500 billion in the long-term. “We estimate e-commerce market size could reach Sh70 billion in the near term, assuming average revenue per user and user penetration levels comparable to India and Sh400-500 in the longer term, assuming penetration level comparable to China,” said the bank in a report. In 2017, communications service provider Safaricom launched the online store Masoko as one of the products to drive revenue growth.

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Masoko is estimated to rake in between Sh2 billion and Sh22 billion in revenue for the company. Treasury is eyeing a share of this and other lucrative revenue flows reported by other companies like Jumia whose parent company Rocket Internet went public in the New York Stock Exchange last month. “I have proposed a raft of tax measures that are aimed at providing the platform for taxation of income generated from the digital economy so as to boost our revenues for inclusive economic development,” said Rotich. At the same time, the Government has set aside Sh1 billion as seed capital under the Ajira Fund in a bid to boost the struggling Ajira Digital Programme which targets to engage one million youths in digital freelance work. Those registered in the programme will also have to pay a registration fee of Sh10,000 for the next three years instead of income tax starting January next year.

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TreasurySMEsHenry RotichGovernment