Tax waiver eases pain of software clearance

The time taken to clear software at customs will reduce to three days following government’s proposal to waiver duty on computer programmes.

It takes seven days to clear the products because traders such as Oracle, SAP and Microsoft have to get the software valued by customs and then seek exemption.

“We have had duty exemption on software in the past. However, one had to first get the software valued, duty amount processed then seek the exemption,” said Festus Kiragu, the financial controller at Microsoft West, East and Central Africa.

“If the software was required urgently, then tax was paid to avoid the hassle of following up with the exemption. With this announcement we expect the process will reduce with about two to three days.”

Vendors normally sell their software either by loading them onto CDs or offering a user license. Software loaded on CDs attracts a 25 per cent import duty and 16 per cent value added tax (VAT) calculated based on invoice value. Customers who buy the user license only pay the VAT.

Multinational software firms will be the biggest beneficiaries of the tax waiver with local developers saying this will tilt the market further in favour of the big players.

Last Thursday, Finance minister Njeru Githae said the removal of import duty on software was aimed at making it cheaper for users and also to attract foreign investors into the IT industry.

“The telecommunication and the ICT sub-sectors have continued to play a critical role in the entire economy. In order to continue supporting these critical sub-sectors and further spur economic growth, I propose to remove duty on all imported software to make it cheaper to our people and further attract foreign investors in this industry,” said Mr Githae.

However, a local software firm, Craft Silicon, has said the government should have borrowed from countries such as India and Singapore by offering tax breaks to local developers and foreign firms to spur innovation and job creation.

“If government wants to promote and make Kenya an IT destination, then it should emulate India and Singapore and give tax holidays to the companies, which would help both local and foreign investors to set up,” said Kamal Budhabhatti, the chief executive officer Craft Silicon.

Craft Silicon exports software to more than 40 countries, mostly into Africa, Asia, Eastern Europe and Latin America with local market contributing only eight per cent of its total annual revenue of about Sh504 million.
The firm focuses mostly on finance software such as core banking, mobile commerce and electronic payment systems.

Mr Budhabhatti said that in Singapore and India software developers enjoy a tax holiday of up to 10 years and are not charged any tax on exported software to encourage the local developers, unlike Kenya where they pay 33 per cent of their total revenue generated as corporate tax.

Singapore also caters for part of relocation fees as an incentive to foreign software firms that want to set up in the country to boost employment opportunities.

Craft Silicon, in an interview with the Business Daily said it is already sent some of its official to Singapore to survey the market with the hope of setting up a centre there in order to benefit from the tax incentives.

“My colleague is already in Singapore where we intend to set up a development centre, a decision that has mostly been informed by favourable tax incentives the country offers and turn the Kenya office to a support centre,” said Mr Budhabhatti. Other than Craft Silicon other local software developers include, Cellulant and Virtual City.

Mugo Kibati, the director general of Vision 2030 secretariat, said his office is still studying the proposal to determine which software the Finance minister meant.

“For us at Vision 2030 we are more inclined in tax waivers that will promote local software firms as this will enable us create employment opportunities and achieve the Vision 2030 set objectives,” said Mr Mugo.

“We will not support a waiver of tax on software that we can develop here in the country.”

Vision 2030 aims at making Kenya a newly industrialised, “middle income country providing high quality life for all its citizens by the year 2030” by creating employment opportunities through sectors such as business process outsourcing and Information Technology Enabled Services (ITES), which incorporates software development.

Other than the waiver on software the government also has removed import duty on set top boxes to reduce the cost of migrating from analogue to digital TV broadcasting.

Acknowledging the significant role ICTs play in Kenya’s economy, Mr Githae said that digital migration would attract more players in the broadcast sector through reduction in the cost of starting broadcast business.

The government had set June 2012 as the deadline for the switch over from analogue to digital TV broadcasting, but the high cost of the set-top boxes and lack of public awareness caused some delay in the transition.

A set top box is a device that contains a tuner and connects to a TV set and an external source of signal, turning the signal into content, which is then displayed on the TV screen or other display device.

Digital TV signals are already on air in Nairobi and its environs, and are expected to be accessible in other major towns before year end. The global deadline for migration from analogue to digital TV broadcasting is June 2015.
mokuttah@ke.nationmedia.com