Kenya in catch-22 on global tax plan

By Editorial Team
Wednesday, July 21st, 2021 00:00 | 2 mins read
Digital tax.

Kenya is at a crossroads as efforts to push sweeping changes to tax big corporations are being made globally.

Whereas most governments have already agreed on a deal to force multinational corporations pay appropriate share of taxes, Kenya is not on the list, raising concerns whether the country is not interested in the Sh16.2 trillion ($150 billion) tax revenues targeted by countries per year.

As at July 9, 132 out of 139 members of the Organisation for Economic Cooperation and Development (OECD) had agreed to the deal, which seeks to address tax challenges arising from digitalisation of the world economy.

The framework has it that a 15 per cent minimum corporate tax rule be imposed on technology giants such as Amazon, Facebook and other big global corporations in countries where their goods or services are sold, even if they have no physical presence there.

Kenya is among the dissenters to this move, raising questions why the country is not keen on the new tax, though there are genuine fears that the move could increase the cost of doing business in the country.

Kenya is now lined up alongside a cabal of smaller nations which have for a long time benefited from being tax-havens for holding out for better terms from corporations.

Overseen by OECD, the new deal has brought on board some large economies including China, Russia and India, which were shy of the tax overhaul a while ago.

It will require Solomonic wisdom for the Treasury to find ways of dealing with this one. If it accepts, the cost of doing business will surge. If it refuses, it will lose out on the proceeds of the interventions.

The National Taxpayers Association warns that refusal to sign could be interpreted to mean there was no political goodwill between Kenya and the OECD and that the country does not subscribe to the global effort to make corporate bigwigs pay taxes.

It will be a tough call for Kenya which has already effected a digital service tax on companies operating in the country’s digital space, which taps 1.5 per cent of their gross transactions.

Similarly, Kenya has a minimum tax law under which firms are required to remit one per cent of their turnover quarterly to Kenya Revenue Authority.

Implementation of the controversial tax has been halted by a case filed in a Machakos court. 

Whichever way you look ,Treasury mandarins are caught between a rock and a hard place.

Editorial Team