The government is on the move to generate extra income by extending to other taxable avenues. The new tax measures now target the big tech corporations, with the digital and social media platforms giving the first impressions for allegedly not contributing even a tip of their robust revenue.
The cabinet secretary for the National Treasury and Economic Planning, John Mbadi, while appearing before the Finance Committee, highlighted the need to tax digital and social media companies that, despite not operating within Kenya, continue to generate lumps of revenue through creative internet users based in Kenya.
The National Treasury in the Tax Amendment Bill has proposed a new tax dubbed Significant Economic Presence Tax (SEPT), seeking the contribution to the economic posterity of Kenya “by a non-resident person whose income from the provision of service is derived from or accrues in Kenya through a business carried out over the digital market place.”
Proposed amendment: SEPT is poised to replace the Digital Service Tax, providing a new fourfold taxation window at the rate of 6% from 1.5%. This means that the targeted avenues will have to fasten their belts to meet demands of the newly proposed amendment.
On the other hand, the bill seeks to introduce a Minimum Top-Up Tax, targeting multi-national enterprises with consolidated annual turnovers of 100 billion shillings to contribute a minimum tax rate of 15%.
The proposed tax had elated mixed reactions from the social media users who accused the government of wanting to tax everything, until the CS clarified on the issue by refuting the claims of the government targeting social media.
On his part, Mbadi acknowledged that it was a misunderstanding by Kenyans—while the government is targeting foreign multinationals without their physical infrastructure invested in Kenya, which directly benefits from the creativity of Kenyans.
“And people who are out there, having their platform here, why would we just tax our Kenyans who are using that platform? But the owners of the platform are not paying anything. And when you make a proposal, people don’t understand it quickly,” CS John Mbadi said.
“Futher from the truth, we are saying if you are doing business here and you are out their, you must leave part of the proceeds here to benefit this economy. Because we have laid the infrastructure for you. There is that internet connectivity that you are using. The Kenyan taxpayer has paid for it,” he added.
So we must gain. How will we maintain that infrastructure if we don’t get part of the money that you generate from here to get back to our economy? So significant economic presence tax should be supported. So sould be the minimum top-up tax,” he asserted.
The CS claimed that despite these multinational enterprises generating high turnovers of $100 billion, they pay less than 15 percent as tax, while organizations that have established their physical presence in Kenya pay 30% corporate tax.
“Because these are multilateral, multinational organizations, huge organizations with high turnovers of $100 billion. And you find that they pay less than 15% as tax. Yet, those physically, those other organizations in Kenya pay 30% corporate tax. So we need to have a system where at least 15% is paid to us as taxation.”
The introduction of such taxation bills, especially the ones targeting social media platforms, could not have direct consequences for the users, but a long-term impact could be felt later by businesses and influencers whose target audiences are on social media.
In 2018, Musevi’s administration introduced a social media tax with the aim of curbing criticism and broadening the tax base. However, the move saw Uganda losing over 30% of internet users between Match and September of that year.
Unlike what Kenya says as a direct target on multinationals, Uganda’s social media was a direct slap on individual internet users, requiring them to pay a daily duty tax of US$0.05 cents to access the platforms. This significantly affected its users, with some of them resorting to traditional means of communications like SMS and VPNs to evade paying taxes.
