One of the canons of taxation is equity. Equity implies that every person pays tax to the State according to his or her ability to pay. That is, in proportion to their revenue which they enjoy under the protection of the State.
Equity in taxation is meant to achieve dual objectives of attaining social justice and a means of enhancing the equal distribution of wealth in an economy.
The Kenya Revenue Authority and the National Treasury are working together to ensure that resources are mobilised locally to fund government programmes. The need for locally generated resources has been on the rise in the recent past in light of the government’s ambitious infrastructural and social programmes dubbed the Big Four and other programmes under the Second Medium Term Plan. The government at the same time aims to reduce its dependence on external borrowing by increasing its tax to GDP ratio.
Kenya has seen tremendous growth in ICT in the last few years. The Economic Survey 2018 puts the mobile data subscriptions at 46.63 million users; number of mobile commerce transactions at 526.991 million; value of mobile commerce transactions at Sh1.552 trillion; broadband subscriptions at 20.9 million; and data/internet subscriptions at 42.204 million during the quarter ended September 2018.
With the rising levels of internet penetration, there has been a steady increase in the number of online transactions. Consumer retail purchases from companies such as Jumia Kenya, Kilimall Kenya, Rupu and other international companies such as E-bay and Amazon have since increased.
The Organization for Economic Co-operation and Development (OECD) has started discussions on taxation of the digital economy. However, these discussions are not likely to be concluded soon. Kenya, like other countries in the world, has opted to begin to address the taxation challenges with regard to digital transactions.
Section 3 of the Income Tax Act imposes income tax upon all the income of a person, whether resident or non-resident, which is accrued in or was derived from Kenya. Equally, Section 5 and 8 of the VAT Act, 2013 imposes Value Added Tax on supply of imported taxable services, including electronic services delivered to a person in Kenya at the time of supply. In addition, the Finance Bill, 2019 has proposed an amendment to tax incomes or supplies on a digital marketplace.
The proposed amendment ensures that income earned or transactions taking place on digital platforms will be taxed in accordance with the law and after taking into account the values generated locally.
Where income earned by such platform owners is derived or accrued in Kenya, then it is only fair that they pay their rightful share of taxes in Kenya. Additionally, taxable supplies made in Kenya through such platforms should also be subject to VAT to ensure equity in taxation policy with other traditional or conventional suppliers of goods and services.
The National Treasury and KRA will continue to monitor the international conversation on taxation of the digital economy and engage all relevant stakeholders as we work on strengthening the taxation regime for the sector.
