Kenya in G7 cue on new taxes
Kenya Revenue Authority (KRA) digital services tax on multinational firms received a major boost after the United States agreed to back sweeping G7 global minimum tax resolution.
The G7 group in a Saturday meeting in London agreed that the biggest companies should pay a minimum of 15 per cent tax where they generate sales and not just where they have a physical presence.
“The global minimum tax would also help the global economy thrive, by leveling the playing field for businesses and encouraging countries to compete on positive bases, such as educating and training our work forces and investing in research and development and infrastructure,” the US Treasury Secretary Janet Yellen said on Twitter.
The revenue agency is targeting to net some 1,000 businesses and persons under the new digital taxes that came into force on January 1.
The taxman had stipulated that online businesses pay 1.5 per cent of all online revenues generated in Kenya.
The deal will see Uber, Google, Facebook, Netflix, Amazon, AirBnB and several other US multinationals start paying at least 15 per cent in taxes to KRA could be a major boost to the exchequer.
It is still not clear how much these companies make in Kenya but the government expects to collect an estimated Sh2 billion from the new DST in the financial year 2020/21.
“We think that the DST is a placeholder for taxing the digital services sector and will likely be replaced by the solution agreed to at the OECD level,” Strathmore University said in a research note.
Local companies such as hotels have in the past complained about the lack of a fair play ground with multinationals such as AirBnB since they don’t pay tax like their local counterparts.
This is a sharp departure from former President Donald Trump’s position that protected the tech giants against taxation abroad.
Several multinational firms especially those providing hosting and server services had started raising charges on Kenyan firms to honour the new tax rules but the G7 is a short in the arm especially for developing nations whose tax base has been sharply eroded by the Covid pandemic.
Kenya’s online marketplace is controlled by major US multinationals meaning that the new tax rules by the government will largely affect foreign companies.
The taxman had also moved to push VAT on online payments in a double assault on the ecommerce business pushing up costs for online businesses.
Covid pandemic has accelerated the shift towards online use by many businesses thereby reducing tax revenues for the government hence the introduction of the DST in the Finance Act 2020.
