The new tax proposals fall under the Tax Laws (Amendment) Bill of 2024 that has been forwarded by the Treasury Ministry.
National Treasury and Economic Planning Cabinet Secretary John Mbadi has provided clarity on the proposed new 15% tax on social media and online businesses, which drew a sharp uproar from the digital-savvy members of the public.
Appearing before the National Assembly’s Finance Committee on Thursday, November 14, the CS outlined that the tax proposals were targeting multinational firms and not Kenyans using social media platforms.
The new tax proposals fall under the Tax Laws (Amendment) Bill of 2024 that has been forwarded by the Treasury Ministry.
“I have heard people talk about social media space and then they say, ‘these people are just creative’ which is true, our people are very creative. People who are out there, having their platforms here; why would we just tax our Kenyans who are using that platform but the owners of the platforms are not paying anything,” Mbadi said.
Social media apps on a phone. /SEARCH ENGINE LAND
The Tax Laws (Amendment) Bill seeks to amend section 3 of the Income Tax in the definition of the term “digital marketplace” by including “ride-hailing services” “food delivery services” “freelance services” “professional services” etc.
This, according to the Ministry, is relevant for taxation of income accruing from business carried out over the internet or an electronic network, including through the digital marketplace.
In the Bill, Mbadi seeks to introduce the Significant Economic Presence Tax (SEPT) at 6 per cent to replace the Digital Presence Tax which is currently at 1.5 per cent.
Mbadi went on to explain that it was necessary for the multinational firms to support the new tax as the government has already laid infrastructure to ease their operations.
“And when you make the proposal people don’t understand it quickly saying, ‘government is raiding social media space’, further from the truth. We are saying if you are doing business here and you are out there you must leave part of the proceeds here to benefit the 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. 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 come back to our economy,” Mbadi added.
The CS was responding to uproar over the amendment of section 3 with many believing that such a move would make the business activity by Kenyans on social media less lucrative.
The Tax Laws (Amendment) Bill, 2024, sponsored by the Leader of Majority, Kimani Ichung’wah, seeks to impose 15 per cent in excise duty fees charged on social media and internet services. However, the consequences of a proposal sailing through Parliament would leave the firms hit with the 15 per cent tax on top of fees charged to users for accessing the internet or social media services.
This would mean that telecommunication companies that provide internet services will be hit with increased operational costs, forcing them to pass on the tax to consumers.
This is likely to lead to higher data and internet bundle prices, which could hinder accessibility and affordability for many users. Internet service providers, serving both residential and businesses, might also raise subscription rates to cover the added expense.
The proposals could also hurt the digital advertising and e-commerce sectors. As social media platforms potentially increase advertising fees to accommodate the tax, digital marketing firms, advertisers, and online retailers will bear the brunt of these costs.
SMEs, freelancers, and influencers who depend on social media for client engagement, brand visibility, and sales could see their reach reduced due to higher advertising costs, thus making it very tough for content creators and digital media platforms to grow their social media accounts and earn a living.
