Why consumers will pay more to use the internet
Lewis Njoka @LewisNjoka
Internet consumers will pay more to remain connected after parliament last week adopted an amendment to increase the excise duty levied on internet and telephone data services from 15 to 20 per cent.
The increase comes at a time when many private and public offices have shifted to offering services online due to the Covid-19 pandemic and many employees are relying on internet connectivity to work from home.
“The proposed amendment is to increase the rate of excise duty from 15 per cent to 20 per cent on telephone and internet data services,” reads a report by the National Assembly Budget and Appropriations Committee, referring to amendments on made on the Finance Bill 2021.
Francis Kamau, a tax partner at Ernst & Young, termed the move as ill-advised, saying it would discourage investment and punish young people who depend on the internet for a living.
Potential revenue
He said due to a tough operating environment, many investors are finding it harder to do business in the country, a situation that has seen the government continue to lose potential revenue.
“It is a knee jerk reaction to cover up after we have failed to retain Foreign Direct Investment,” Kamau said. Consumers fear that the additional cost will be passed to them making it harder to access internet services.
Worse still, the pandemic has accelerated the adoption of digital services in the country, a fact that has seen the provision of government services including the acquisition of drivers’ licence, land transfer, parking and licence fees moved online.
Henry Mugambi, a freelance online writer, says increasing excise tax on internet will only make it harder for those rendered jobless by Covid-19 pandemic to find an alternative source of income by working online.
“I am against it because they are hindering development of new businesses. At the moment, many people who have lost jobs due to the Covid-19 pandemic are using the internet to eke out a living.
How does the government expect them to survive if it’s making internet more costly?” he posed.
Currently, thousands of Kenyans make a living working online. These include online writers, app creators, artistic content creators and remote personal assistants among others.
Reducing internet accessibility could also affect the success of Ajira digital, a government-led initiative launched in 2016 that seeks to provide online jobs for over one million Kenyans.
But it’s not all doom and gloom for Kenyans working in the online space. In the 2021/2022 budget presented to Parliament earlier this month, Treasury proposed that only non-residents should pay Digital Service Tax tax unlike previously where both residents and non-residents were liable.
This, according to tax experts, will offer Kenyans eking a living in the digital space a much-needed relief considering they are already paying other taxes.
Subject to tax
“This provision will offer relief to residents who are already subject to tax on the income that they derive from the digital platforms.
Further, this proposal aligns the taxation of income accrued through digital marketplaces with international best practices,” said audit firm KPMG on a previous commentary.
The Tax, introduced via Finance Act 2020, requires that digital service providers and digital marketplace providers pay 1.5 per cent of the gross transaction value as digital service tax.
In the coming financial year, which starts in July, Treasury will be seeking to finance a Sh3.6 trillion budget, the largest in Kenya’s history.
Of this amount, Treasury hopes to raise revenue (including appropriations-in-aid) totaling to Sh2.04 trillion leaving a deficit of Sh976.2 billion to be met through internal and external borrowing.
