This archive report was first published on 31 October 2019.
On October 31, 2019, the World Bank released its Kenya Economic Update, which highlighted the challenges of taxing digital trade in Kenya. According to Casey Turgusson, a senior digital development specialist at the World Bank Group, collecting taxes from digital businesses is crucial for expanding the tax base, but it will not be an easy task for the Kenya Revenue Authority (KRA).
The Kenyan government has proposed amendments to the Income Tax Act through the Finance Bill, 2019, to include income from digital marketplaces as taxable income. However, Turgusson questioned how the government would collect taxes from digital marketplaces without a suitable mechanism in place.
He noted that start-ups often operate at a loss for several years to gain market share before becoming profitable, making it challenging to tax their income. Turgusson also pointed out that tax evasion is prevalent among small and medium enterprises on online platforms.
Parliament has rejected proposals to scrap the tax on digital businesses, arguing that transactions carried out through digital platforms are not different from those carried out through ordinary business activities. The Kenya Revenue Authority plans to collect a small withholding tax from digital platforms to encourage tax compliance.
The World Bank report also highlighted the issue of market concentration in the telecom sector, with Turgusson noting that Kenya's mobile money sub-sector has less competition compared to other countries. He advised Kenyan regulators to be vigilant about the abuse of market power.
