KICTANet Thought Leadership Series.
Policy Discussion on Digital Taxation in Kenya.
Date: 29 May 2024, 0800 – 1400 hours
Place: Nairobi, by Invitation
Introduction
The Kenya ICT Action Network (KICTANet) is pleased to convene a thought-leadership roundtable discussion titled “Policy Discussion on Digital Taxation in Kenya“.
Background and Context
In an increasingly digitized world, the taxation landscape is undergoing significant transformation, posing both challenges and opportunities for policymakers and stakeholders. The digitization of Kenya’s economy has ushered in a transformative era of taxation, marked by the introduction of digital taxation through the Finance Act 2020 . The tax rate is set at 1.5% of the gross transaction value. In the financial year ending in 2023, the Kenya Revenue Authority (KRA) collected KES 5.328 billion (approximately $37.5 million), which marked a 207.9% growth compared to the previous financial year. Kenya’s digital services market revenue. Kenya’s digital services market revenue was projected to reach US$4.4 billion in 2022, up from $1.9 billion in 2017. This indicates a substantial increase and suggests that the digital service tax could continue to be a significant revenue stream for the government.
This monumental shift reflects the proactive stance of the Kenyan government in modernizing its tax framework to align with the dynamic contours of the digital landscape. However, this transition has not been without its challenges. The introduction of digital service tax (DST) brought with it a wave of anticipation mingled with apprehension, as stakeholders grappled with concerns surrounding compliance, tax base erosion, and enforcement in the face of the borderless nature of digital transactions.
Yet, within these challenges lie remarkable opportunities for Kenya’s fiscal future. The digital service tax presents a strategic avenue for mobilizing additional revenue from the burgeoning digital transactions within the country, thereby diversifying revenue streams and reducing dependency on traditional sectors. Moreover, the integration of technological advancements in tax collection promises to revolutionize efficiency and reduce compliance costs, benefiting both taxpayers and tax authorities alike. Statistical insights underscore the critical importance of digital transactions in Kenya’s economy, with mobile commerce transactions valued at over KES six trillion in 2018, underscoring the imperative for effective digital taxation measures in the modern era. Additionally, the substantial contribution of the ICT sector to tax revenue highlights the pivotal role of adapting tax policies to the evolving dynamics of the digital economy. As Kenya introduced digital service tax, reactions from service providers varied significantly, providing valuable insights into the nuanced dynamics of digital taxation. Digital Service Tax (DST) is payable on income derived or accrued in Kenya from services offered through a digital marketplace.
While some services experienced no increase in costs, others reduced costs to stimulate user adoption. This scenario underscores the delicate balance that developing countries must strike in implementing digital taxes—generating revenue without impeding business growth or excluding local users from the global economy. In implementing the digital service tax at a rate of 1.5% of the gross transaction value, Kenya endeavors to strike a delicate balance between fostering the growth of the digital economy and ensuring equitable taxation practices. This strategic move reflects a broader global trend in digital taxation, wherein countries grapple with the complexities of taxing digital transactions effectively.
The taxation of the digital economy is a complex and evolving issue that has garnered significant attention globally, with various trends and policy frameworks shaping the landscape. Many countries are implementing Digital Services Taxes (DSTs) to tax revenue generated by digital companies within their borders, while the OECD’s Base Erosion and Profit Shifting (BEPS) project proposes a two-pillar solution to address digital taxation challenges, focusing on reallocation of taxing rights and introducing a global minimum tax. Additionally, some countries have introduced unilateral measures to tax the digital economy due to slow progress on international consensus. Meanwhile, the OECD/G20 Inclusive Framework on BEPS aims to reform international tax regimes and tackle digital taxation challenges, with nearly 140 countries endorsing it. National legislation is also being updated to accommodate the digital economy. Research by Research ICT Solutions has quantified the impact of new ICT taxes on various aspects like GDP growth, tax revenue, employment, and mobile operator revenues. The rapid growth of the digital economy and its unique characteristics pose challenges in allocating taxing rights, necessitating these policy changes to ensure fair taxation. However, the implementation of new tax rules and resolution of potential disputes remain critical areas to monitor in the future.
KICTANet has actively engaged in advocating for budget priorities in the ICT sector. KICTANet submissions were made to the Institute of Economic Affairs to be presented to the treasury and parliament, highlighting key budget priorities in the ICT Sector including digital taxation. This proactive engagement underscores KICTANet’s commitment to shaping policy discourse and driving positive change in the ICT sector.
Objectives:
The objective of the roundtable series is to provide a platform for informed dialogue and engagement on the concerns and opportunities of digital taxation in Kenya. Specifically, the roundtable aims to achieve the following:
- Facilitate Discussions and Engagement: By bringing together policymakers, key stakeholders and experts from the ICT sector, the roundtable seeks to facilitate nuanced discussions and engagement on concerns and opportunities on digital taxation and the policy options relevant to Kenya’s context.
- Identify Priority Policy Actions: Through collaborative engagement, participants will identify priority policy actions and potential solutions to address the challenges of digital taxation effectively.
Expected Outcomes:
As a result of the roundtable discussions, the following outcomes are anticipated:
- Enhanced Understanding and Engagement: Stakeholders will gain a deeper understanding of the complexities surrounding digital taxation and will be better equipped to engage in informed policy discourse and decision-making processes.
- Identification of Priority Policy Actions: Participants will identify priority policy actions and potential solutions to promote an enabling environment for digital taxation in Kenya.
- Development of a Policy Brief: A comprehensive policy brief outlining key policy issues and proposed recommendations will be produced, serving as a valuable resource for stakeholders and policymakers moving forward. The policy brief will include market trends, laws, regulations, discussions, and frameworks.
Output
The roundtable shall result in a policy brief outlining the key policy issues and proposed recommendations to various stakeholders moving forward.
Format of the Event
This thought-provoking leadership series shall be in the form of a half-day roundtable meeting with a keynote speech followed by expert presentations, panel discussions, and plenary sessions among the stakeholders present.
Attendees
The participants will include relevant local actors drawn from the government, including relevant agencies and departments, the private sector, the technical community, academia, media, development partners, civil society, and other non-governmental actors.
Agenda
| Time | Agenda | Moderator |
|---|---|---|
| 08:00 – 08:30 | Arrival and Registration | KICTANet Team |
| 08:30 – 08:45 | Opening and Welcome Remarks
KICTANet Sarah Muyonga, Meta Platforms Inc |
KICTANet Team |
| 08:45 – 9:00 | Agenda Setting and Objectives | KICTANet / Meta Team
Victor Kapiyo |
| 9:00 – 9:10 | Opening remarks and the role of Parliament on the Finance Bill 2024 | Hon Umulkher Harun, MP, Kenya National Assembly |
| 0910 – 0930 | Presentation: Setting the scene | Dr. Misiani Mwencha |
| 09:30 – 10:30 | Panel Discussion: Taxing the Digital Economy – Issues for Kenya Tax Policy
|
Moderator: Dr. Misiani Mwencha
How can Kenya balance meeting local demands while adhering to international standards in its digital tax policies? (Lawrence Mungai, PWC) What are key considerations for Kenya in deploying digital taxes? How can tax laws overcome these obstacles without impeding innovation? (Fred Ogutu, Bowmans Law) How can Kenya’s 2024 tax policy effectively integrate digital service taxes to diversify revenue streams while ensuring compliance and minimizing the impact on business growth and consumer costs? (Polycarp, UoN) How can Kenya’s tax policy effectively address the challenges of taxing the digital economy, such as determining the jurisdiction of value creation and preventing base erosion, while ensuring compliance with international tax standards and fostering economic growth? – (Ngina Mutava, Strathmore Tax Research Centre) |
| 10:30 – 11:00 | Plenary Discussions
Q & A |
|
| 11:00 – 11:20 | Tea Break | |
| 11:20 – 12:30 | Panel Discussion: Taxation: Challenges and Opportunities
|
Moderator: Barrack Otieno, KICTANet
What strategies can the Kenya Revenue Authority implement to effectively enforce digital tax laws, ensuring compliance from both resident and non-resident digital service providers, while addressing the challenges of jurisdiction, transaction tracking, and fair taxation? – (Nickson Omondi, KRA) Do the new tax obligations provide incentives and support mechanisms for local digital businesses to thrive? Are you able to remain competitive under the current tax regime? What is the wish for SMES? (Mercy Kimala, Association of Startup and SME Enablers of Kenya) What measures can be implemented to simplify compliance with digital tax laws in Kenya, thereby promoting the expansion and growth of the digital economy? – John Walubengo, MMU How can Kenya lessen the digital divide and encourage equitable economic development through the usage of digital taxes? –Martin Mbaya, Strathmore University |
| 12:30 – 12:45 | Recommendations and Next Steps | Moderator: Victor Kapiyo- KICTANet / Meta Team |
| 12:45 – 13:00 | Wrap Up and Closing Session | |
| 13:15 – 14:00 | Lunch Break | |
About the Organizers
The Kenya ICT Action Network (KICTANet) is a policy think tank that acts as a multi-stakeholder ICT policy and regulation platform. KICTANet’s guiding philosophy encourages synergies for ICT policy-related activities and initiatives. The network provides mechanisms and a framework for continuing cooperation and collaboration in ICT matters among industry technical community, academia, media, development partners, and Government.
