The Kenyan government has outlined several key tax measures aimed at enhancing the tax environment for technology and digital services in the 2024/2025 budget. These measures are designed to increase revenue, promote local production, and support the growth of the digital economy.
In this article are some of the key technological tax measures to be effected in Kenya for FY 2024/25, as elaborated by Robert Mbaziira, a Senior Tax Manager at Ernst & Young, during a post-budget breakfast meeting held to analyze the key notes to take from the budget readings done across East Africa.
Withholding Tax on Digital Payments
Owners or operators of digital platforms through which payments for digital content monetisation, goods, property or services would be made or facilitated will be required to withhold tax on the payments at 5% and 20%, to residents and non-residents, respectively.
Mbaziira states that this measure aims to increase tax collection from digital transactions and ensure compliance with tax laws.
Extension of Withholding Tax on Digital Content Monetization
The withholding tax regime on digital content monetization, which currently applies at 5% for residents and 20% for non-residents, to be extended to payments for creative works such as music, movies, and literature, or for creating or sharing the material or any other material that is offered electronically.
According to Mbaziira, this expansion will help capture more revenue from digital content and ensure that creators and providers of digital content contribute to the tax base.
Withholding Tax on Software-Related Payments
All software-related payments shall qualify as royalties, therefore, subject to withholding tax at 5% and 20%, for resident and non-resident payments, respectively.
This measure will increase tax revenue from software transactions and ensure that software developers and providers contribute to the tax base.
Digital Services Tax (DST) out, Significant Economic Presence Tax (SEPT) in
Digital Service Tax (DST), which currently applies at 1.5% of the income of non-residents from businesses carried out over the internet or electronic networks to be abandoned and replaced with a tax known as Significant Economic Presence Tax (SEPT), that shall apply at an effective tax rate of 6% of the gross turnover of non-residents from the provision of services through a digital marketplace.
Digital marketplace has been defined to include platforms that provide ride-hailing services, food delivery services, freelance services, professional services, rental services, and task- based services.
Tax expert Mbaziira believes that this change aims to better capture revenue from digital services and ensure that non-resident digital service providers contribute to the tax base.
Increase in Excise Duty on Telecoms
Increase in excise duty on Telephone and internet data; as well as on fees charged for money transfer by banks, money transfer agencies and other financial service providers from 15% to 20%.
Mbaziira asserts that this measure aims to increase revenue from telecommunications services and ensure that service providers contribute to the tax base.
Introduction of Excise Duty on Internet Advertisements fees
Excise duty will be introduced on fees charged for advertisements via the internet and social media in relation to specific products and services, such as alcoholic beverages, betting, gaming lotteries, and prize competitions.
This measure aims to increase revenue from online advertising and ensure that service providers contribute to the tax base, according to Mbaziira.
Extension of Duty Remission on Gadget Inputs
Duty remission on inputs for the manufacture and assembly of smart telecommunication devices, including mobile phones, laptops, and tablets, will be extended for one year.
Mbaziira states that this measure aims to support local production and assembly of smart devices, promoting the growth of the technology sector in Kenya.
