How Gov't plans to use technology to tax digital platforms

Treasury Cabinet Secretary John Mbadi has outlined the government's plan to expand tax collection within the digital marketplace in a bid to reduce the country’s current Ksh.170 billion fiscal deficit.

Following a Supreme Court ruling that overturned the Court of Appeal’s decision to quash the Finance Bill, 2024, the government now intends to reinstate certain tax provisions initially scrapped from the controversial bill.

The provisions, will be consolidated into three new bills; the Tax Laws (Amendment) Bill, 2024, the Tax Procedures (Amendment) Bill, 2024, and the Public Finance Management (Amendment) Bill, 2024.

Much like the Finance Bill, the Tax Laws (Amendment) Bill, 2024 will seek to amend Section 3 of the Income Tax Act to include more digital operators into the tax bracket, including ride-hailing, food delivery, professional, freelance and rental service providers, ensuring that these sectors contribute to the national revenue pool.

Speaking on Citizen TV’s JKLive Show on Wednesday during a town hall session held at Daystar University in Nairobi, Mbadi stressed that one of the challenges in achieving the desired growth in tax collection, lies in difficulties in taxing the digital economy. 

“One of the reasons our tax collection is not growing with the GDP and at the rate we want is that there are difficulties in taxing the digital economy. The agricultural, informal and digital economies are hard to tax,” said the CS.

Mbadi however opined that technology offers a solution to the challenges, highlighting ongoing efforts to modernize and upgrade the Kenya Revenue Authority (KRA) technology system to improve revenue collection for players in the digital marketplace. 

“That is why we have technology, presently we have been talking a lot about modernizing and improving the KRA I.T system and the system is being put in place. Phase 1 has been rolled out and we are going to phase two and we are going to enhance tax visibility not only in the digital space but also the informal sector,” he said.

Mbadi’s sentiments were shared by Treasury Principal Secretary Chris Kiptoo, also in attendance, who pointed out that while digital marketplace players contribute significantly to the economy, their tax contributions have historically been low.

PS Kiptoo added that proposals currently before Parliament include a "minimum top-up tax" and a framework to tax businesses with a “significant economic presence” in Kenya, even if they lack a physical presence.

This is particularly relevant as companies operating through digital marketplaces without local ownership or physical offices, will still be required to pay taxes within Kenya.

“We have defined digital marketplace and we are trying to broaden the number of services under digital marketplace. Any owner or operator of a digital marketplace is also supposed to pay tax. Uber for instance …the owner is not Kenya but is present. We are targeting the owners particularly of where the digital transactions are taking place,” he noted.

KRA Commissioner General Humphrey Wattanga added: “We are looking at global best practices because we are not the first jurisdiction seeking to interact with digital commerce. We are learning from other jurisdictions that have applied these solutions; we are engaging and looking at what best solutions we can adopt and bring into this market.”