Taxation for the digital era: Kenya
Accessible, reliable and affordable broadband Internet is the foundation of the digital economy and digital inclusion. Improved broadband penetration is associated with substantial socioeconomic benefits, contributing to enhanced productivity, facilitating information exchange, and improving service delivery across the economy.
The ICT sector in Kenya is taxed heavily. Consumer taxes represent 21% of the total cost of mobile services, compared to 14% for the rest of Africa (GSMA 2020). Mobile service excise duties alone contributed 2.2% of total tax revenue for the 2020 Financial year, compared to the sector’s GDP contribution of 3.1%. Other taxes such as WHT, VAT and corporate income tax still need to be added in.
The digitalisation of the global economy amplified the problem of tax avoidance and tax fairness and led to a rise in digital taxes around the world, leading to an increase in trade law challenges. Kenya is one of the countries that has introduced a Digital Service Tax (DST).
This policy brief shows that there is an alternative option to a DST for Kenya. The context surrounding this policy brief is an unprecedented new global tax framework that was adopted by the OECD in October 2021. This framework solves the main challenge that many unilateral DST’s cannot address: a fair allocation of taxing rights so that the home country is no longer the sole beneficiary of taxation of multinational companies (MNEs). It also prevents MNEs from avoiding corporate income tax. Download the Policy Brief here.