This archive report was first published on 16 June 2020.
On June 16, 2020, the Kenyan Cabinet Secretary introduced a 1.5% tax on services offered online, sparking debate on its effectiveness.
As the economy shifts to the digital space, Kenya must consider how to gain its rightful share of digital transactions. However, the proposed digital tax may not be the solution, as it may not be enforceable against big international players.
Companies like Netflix or Facebook may choose to ignore the tax regime, as the cost of complying with different tax laws in multiple African countries may be higher than the revenues they generate from the region.
India and France have implemented similar digital service tax regimes, but they have attracted retaliatory trade wars with the US administration.
Kenya's decision to implement a digital tax alone may have little impact, and the local eCommerce start-ups may be the ones that get hit by the tax more than the big international players.
Section Four of the regulations states that taxable supplies made through a digital marketplace include electronic services, such as downloadable digital content and subscription-based media.
Local start-ups that offer e-education services, online entertainment, and other digital services may be competing with international service providers who have the power to ignore the digital tax.
Could the digital tax be indirectly promoting global players at the expense of local start-ups trying to enter the digital market place?
There are no quick answers to these questions, but it is essential for the Kenya Revenue Authority to consider the disparities and think overtime about them.
Mr. Walubengo is a lecturer at Multimedia University of Kenya, Faculty of Computing and IT.
