Isaac Mwaura Explains Why Govt Wants To Tax Digital Companies In Kenya

Government Spokesperson Isaac Mwaura on Monday, November 11 explained why the Kenya Kwanza government was keen on introducing new taxation measures, including the move to expand the definition of a digital marketplace.

In a press release, Mwaura argued that the tax proposals targeting the digital space were part of the measures aimed at expanding the tax base.

The new definition as captured in the proposed Tax Laws (Amendment) Bill, 2024 will include ride-hailing services, food delivery services, freelance services, and professional services, among others. This was one proposal that was fronted in the deleted Finance Bill 2024.

Per Mwaura’s sentiments, many Kenyans and foreigners in the digital space were currently not paying taxes despite earning an income, thus including them in the tax bracket will not only expand the tax base but also help the government raise more revenue.

A person using an online taxi app. /FILE

“The proposed laws seek to expand the digital tax base, including services like ride-hailing, food delivery, freelance, and professional services under the definition of a “digital marketplace.” This move is essential in ensuring that digital service providers fairly contribute to the economy,” he stated in part.

Mwaura also argued that digital taxation was a global practice, hence the need to make new laws targeting foreigners in the space.

“A tax will be levied on income derived from services provided by non-resident entities operating in Kenya’s digital marketplace. This ensures that foreign digital businesses contribute at fair rates and aligns Kenya’s tax system with global best practices,” he added.

The Bill seeks to amend Section 3 of the Income Tax Act in the definition of the digital marketplace by including ride-hailing services, food delivery services, freelance services, and professional services.

In this move, the National Treasury seeks to impose new taxes on income acquired over business done over the internet or an electronic network, a proposal viewed at bringing owners of these businesses into the tax net.

The Government has come up with new tax proposals after the seventh and eighth reviews on disbursement revealed that the Treasury fell short of its targets by Ksh34.3 billion. In addition, the withdrawal of the Finance Bill 2024 which had sought to bring in proposals that were aimed at increasing revenue necessitated the fresh Amendment Bill.

The government is seeking to tap into the rapidly growing digital economy, which has become a significant contributor to Kenya’s overall economic activity. In Kenya, ride-hailing services- taxis, have an adoption rate of 46 per cent which is the third highest adoption rate in Africa. Bolt is the leading ride-hailing service provider in Kenya with Uber and Safeboda closing out the top three.

Food delivery services are another prominent fixture in the digital marketplace in Kenya. On a broader perspective, the online food delivery market in Africa is projected to reach USD 13.75 billion by 2024 with an annual growth rate of 12.66 per cent. In Kenya, apps like Glovo, Jumia Foods, and Uber Eats are the three big players in the market.

According to Statista, the revenue in the Online Food Delivery market in Kenya is projected to reach USD 436.20 million(Ksh56.2 billion) in 2024. This is expected to show an annual growth rate (CAGR 2024-2029) of 7.77 per cent, resulting in a projected market volume of USD 634.10 million (Ksh81.7 billion) by 2029.

Freelance services have taken root in the country with a multitude of sectors countrywide breeding with freelancers who have been able to create income for themselves. With these tax proposals, the Treasury seeks to shine a light on the freelancing industry.

Mbadi’s tax proposals will be presented to Parliament for debate and potential approval. They do run the risk of drawing fresh uproar from the public as new taxes would pile pressure on a population that is already struggling with the high cost of living, and lower the appeal of the online space in Kenya in terms of it being a source of quick and easy revenue.

This is despite the State assuring that it learnt its lesson from the Finance Bill 2024 and had insisted that the Bill had more to offer Kenyans even though it was opposed due to widespread misinformation.