New taxes, fraud haunt Kenyas vibrant online market

An unpredictable tax environment coupled with the infiltration of fraud in Kenya’s online market is set to dampen the expansion of the sector which neared its full potential in 2020.

For instance, the providers of goods and services in Kenya’s online market place has been required to charge 1.5 per cent of gross purchase values as levies defined as the digital services tax (DST) from January this year.

The respective tax has been viewed as a liability in the expansion of e-commerce in the country with the cost being borne by consumers.

Players in the e-commerce sector are now lobbying for the consideration of the tax arguing the industry remains under its potential.

“The eco-system is young, perhaps we should be given some-time to grow until e-commerce can stand on its feet. We should be allowed to prosper before the taxes take route,” said the Chief Executive Officer to e-commerce platform Africa Sokoni, Ebrima Fatty.

“We remain in talks with Parliament on the benefits of waiving tax to the e-commerce eco-system but we have to be compliant at the moment,” added the firms Chief Operating Officer Celeste Liyai.

On the flip side, the infiltration of fraud in the eco-system has served to severe trust between online commerce platforms and consumers dampening transactions in the space.

For instance, the country has seen the emergence of counterfeit sites mimicking established online platforms such as Amazon and AliExpress.

The proliferation of illegitimate sites has seen online platforms step up their investment in cyber-security as the credibility of their own establishments come under sharp scrutiny.

“E-commerce is all about trust. The customer is ordering for something they haven’t seen physically,” noted Ebrima Fatty.

Stronger 2021

Nevertheless, the e-commerce industry has been projected to surpass its record gains from 2020 buoyed by a sharp rise of online orders from goods and services during the pandemic.

“The transition from physical to virtual for the African consumer had been taking longer than expected. People were aware of the alternatives but were not using them until we saw lockdowns come into effect,” added Fatty.

Jumia Kenya Chief Executive Officer Sam Chappatte shares similar views with his company highlighting online purchases for everyday goods.

“We’ve been seeing a shift towards the purchase of everyday products- unga, sugar, cooking oil. This is because people have been seeking to avoid crowds and order from the same supermarkets but do it online,” he said in a recent interview.

The growth of e-commerce has however emerged strongly in countries that saw a full lockdown than Kenya which only saw partial restrictions to the normal.

“We have seen explosive e-commerce growth in country’s that underwent a full lockdown such as Tunisia and Morocco. In a Kenyan perspective, growth has been good but not explosive,” added Chappatte.

Across the world e-commerce grew into a stronger footing in 2020 with Canadian based online retail giant Shopify predicting sakes hit $4.2 trillion representing nearly one fifth of all retail trade.

In the US, a survey by McKinsey & Co showed e-commerce had experienced a 10-year growth cycle in just three months in the first quarter of last year.

The rise of e-commerce has also seen the rise of direct to customer sales (DTC) as traditional retail giants tussle to topple their emerging online peers.

Another survey by e-Marketer puts e-commerce growth in the Middle East and Africa at 19.8 per cent behind only Central and Eastern Europe at 21.5 per cent as the region emerges from a lower online commerce penetration base.

Local players are now eyeing to grow their respective market shares with Africa Sokoni for instance gearing to start operations in three new African markets in 2021.