Kenya to Impose New Digital Tax on Tech Companies

Ritika Sharma
Ritika Kumari Sharma is an Economics Honors graduate from the University of Calcutta. She is completely into finance and believes that cryptocurrencies are the future. She is an enthusiast learner about the cryptocurrency and blockchain technology.
  • The Kenyan Government is planning to broaden the conversation on digital taxes.
  • According to the Finance Bill 2020, the nation will impose a 1.5% tax on digital services.
  • Kenya Revenue Authority (KRA) has announced that new rules will make users of digital market to pay digital tax and this will be expected to take effect on January 1, 2021.

The Kenyan Government is planning to broaden the conversation on digital taxes and a new law regarding it was signed by President Uhuru Kenyatta. According to the Finance Bill 2020, the nation will impose a 1.5% tax on digital services.

Kenya Revenue Authority (KRA) has announced that new rules will make users of digital market to pay digital tax and this will be expected to take effect on January 1, 2021. According to a report, the KRA will set up a new unit to track revenues generated from every digital transaction within the country. Kenya expects that it will generate a tax of $19 million annually.

Caxton Masudi, Deputy Commissioner of KRA said that this law will ensure that the digital sector pays their fair share of taxes and transaction tracers will be used once taxes are imposed. Digital platform is the platform which enables interactions between buyers and sellers through electronic ways. Cryptocurrency platforms fall under the term marketplace defined by the Authority as it uses electronic means.

Motives Behind Digital Tax are Unclear

It’s not clear who will get affected or how the tax will be imposed. There is no proper timeline regarding when to publish the regulations meaning a delay in the enforcement of the law. David Gitonga, Founder and Managing Editor at Bitcoinke commented on the lack of new regulations that digital tax will prod Kenya towards the regulation of cryptocurrencies. He even explained that people of Kenya have ignored Crypto Regulation as there is no proper understanding of how rapid this field’s growth is.

Kenya is not the first country to go in the direction of taxing digital transactions.In 2016, India started to impose digital taxes on tech companies which were involved in digital advertising. The country went further in this regard and made a provision which requires companies to pay tax on domestic income ensued from digital platforms. In 2019, European country France proposed a digital tax of 3% to be paid by tech companies which make revenue from digital services.

Will it be flourishing move?

Currently, Kenya is one of the top five African countries with high volumes of Bitcoin trading. With this law into effect, Kenya becomes one of those countries which imposed tariffs on tech giants. While the US is opposing this claiming that it will unfairly target their companies, countries like France believe that the tax will prevent internet firms from diverting revenues to reduce taxes. In Spite of Kenya’s clear political tendency to move forward with digital taxes, there will be a lot of mistakes coming along the path. Kenya should cross check whether these regulations will align with broader government policy on the digital economy.

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