President William Ruto on Thursday, March 30, announced that the government would from July 1, 2023 drop the Digital Services Tax (DST) charged on multinationals offering online services in Kenya.
President Ruto noted that the DST, which was effected on January 1, 2021, had made Kenyan uncompetitive and had discouraged international investors.
Kenya introduced the contentious tax amid concern that the country should introduce the tax through the Organization for Economic Cooperation and Development (OECD).
“The growth of digital commerce has forced many countries to impose Digital Services Tax measures on income derived in their tax jurisdictions. Kenya has also done the same.
“Following discussions with players in this sector, we have made a commitment to review this tax regime and align it with the two-pillar solution currently being developed by the Organisation for Economic Cooperation and Development (OECD) inclusive framework. The framework will guide the taxation of digital commerce transactions,” the President stated.
Between January 2021 and January 2023, Kenya Revenue Authority (KRA) collected a total of Ksh174 million - mainly remitted by tech giants operating in Kenya.
Some of the biggest beneficiaries of the decision to scrap the digital tax are highlighted below:
Airbnb operators were among the biggest casualties of DST. The home rental company has been deducting 1.5% of the transactional value. The tax applies to both the hosts who receive payments from the platforms and travellers who make book homes on the platform.
Google has been one of the biggest remmitants of DST. Through YouTube, the company pays millions to influencers, YouTubers, content creators, musicians, among other creatives who put up their work on the video platform.
The payments have also been subject to the digital tax and with the new change, this group will be getting a slight bump in their next payouts.
Digital publishers and bloggers also rely on Google as part of their revenue model. The search engine giant places ads on various websites and pays a commission to owners of these platforms. The payments from these ads have been subject to DST as they are considered as exported services.
Meta, the parent company of Facebook, Instagram, and WhatsApp, provides a platform for thousands of Kenyans to advertise their services online.
These transactions were affected by the Digital Service Tax and with the changes, Kenyans operating in the e-commerce world will pay less to advertise on Facebook, Twitter, and other social media platforms.
Entertainment subscription companies such as Netflix were also affected by DST. The subscriptions are expected to reduce slightly in light of the scrapping of the DST.
President Ruto made the announcement during the American Chamber of Commerce Regional Business Summit held in Nairobi.
The Kenyan head of state also extended his bag of goodies to investors and Kenyans working in startup companies.
It will now be possible for employees to be rewarded in shares in the startup capitals without incurring taxes in the transfer process.
“I have received complaints that we impose “employee benefit tax” on allocated shares to employees of startup companies, even before any value is realised on these shares. The government will exempt startup companies from paying taxes on such unrealised gains on employee-allocated shares starting 1st July this year,” President Ruto announced.
Further, multinationals and foreign companies operating in Kenya’s Information, Communication and Technology (ICT) sector have been spared from a law that required them to have at least 30% of local ownership by March 2024.
Section 975 (2) (b) of Companies Act 2015, made it mandatory for foreign companies, establishing branches in Kenya, to demonstrate that at least 30% of their shareholding is held by Kenyan citizens by birth.
The head of state indicated that the government was in the process of changing the law.
Ruto cited feedback from a representative of Amazon Web Services, a company owned by one of the world’s richest men, Jeff Bezos.
“I was persuaded by a good gentleman from Amazon Web Services that it was impossible for Amazon to cede 30 percent equity to any entity they didn’t have any business relationship with. And as a result, they were holding their investment in our country.
“This position is untenable and has made it impossible for large corporations to invest in Kenya. We will review this position and remove this requirement to facilitate greater investment in our ICT sector. Additionally, our data protection law is aligned to support robust growth in data storage,” he added.