A couple of months ago Kenyan President Uhuru Kenyatta approved the 2020 Financial Bill. The bill made a number of changes to Kenyan Tax legislation but the biggest part about that bill was the Digital Services Tax. Through this legislation, the Kenyan government would impose a 1.5% tax on digital sales and services. The US government is reportedly putting pressure on Kenya over the digital tax.
So why is the US pushing back on the digital tax?
The Digital Services Tax covers internet-based services that offer:
- Subscriptions to streaming services, news magazines and podcasts.
- Electronic data management including web hosting, cloud storage, and file sharing.
- Supply of movies films, music and games
- E-learning and distance learning platforms
- Supply of search engines, automated help desks and any other digital market supply as determined by Commissioner of Kenya’s Revenue Authority.
Companies like Google, Amazon, Spotify, Netflix and more offer these services and would be subject to the 1.5% Digital Services Tax. In a report by The East African, the US is insisting that Kenya should exempt US firms from Digital Services Tax. The report also goes on to say that there shouldn’t be any provisions that require US firms operating in Kenya to store their data locally.
The situation is made all the more complicated because the US and Kenya are in negotiations over a free trade agreement. If Kenya doesn’t facilitate an exemption for US firms then the trade agreement may be in jeopardy.
There’s more to this
Another complication to the Digital Services Tax comes by way of the World Trade Organisation’s moratorium on e-Commerce.
“We also declare that Members will continue their current practice of not imposing customs duties on electronic transmissions”WTO Decleration on Global Electronic Commerce
The moratorium has however been challenged in situations where physical products like books, for example, have been digitised.
It will be interesting to see how this unfolds
Kenya is in a difficult position because the free trade agreement with the United States would be enormously beneficial. On the other hand, if US firms are exempt from the tax it will still apply to companies from other countries as well as local Kenyan businesses.