Global software suppliers to Kenya Airways (KQ) will be spared from the new digital service tax, which is a relief for the national carrier as it would otherwise have faced potentially hefty bills for its booking platforms and aircraft avionics systems.
Draft regulations published by the National Treasury Cabinet Secretary, John Mbadi, exempt digital service providers from paying the Significant Economic Presence (SEP) tax when supplying an airline in which the State holds at least a 45 percent stake.
“For the purpose of these regulations, significant economic presence tax shall not apply to...a non-resident person providing digital services to an airline in which the government of Kenya has at least forty-five percent shareholding,” read the Income Tax (Significant Economic Presence Tax) Regulations, 2025.
SEP is charged at an effective rate of three percent. KQ uses a central reservation system for passenger bookings, which, together with the frequent flyer programme, cost Sh8.773 billion in the year to December 2024.
The airline also uses an aircraft system known as avionics for landing, handling and navigation.
Global travel technology firm Amadeus is one of Kenya Airways’ booking system providers and began distributing the carrier’s NDC content—real-time, API-based offers and ancillaries—through the Amadeus Travel Platform.
In the same financial year, the airline disclosed in its annual report that it had spent Sh21.965 billion on aircraft landing, handling and navigation. This means software producers would have paid billions in SEP taxes, an expense they would have passed on to KQ.
Leading suppliers of avionics include Collins Aerospace (formerly Rockwell Collins), Honeywell Aerospace, Thales, Safran Electronics & Defense, L3Harris, and Boeing AvionX. Collins Aerospace supplied avionics to Kenya Airways, including the TCAS fitted on KQ’s Boeing 777s.
Michael Mburugu, a regional tax partner at PKF, said that airlines pay for a wide range of digital services, including weather information across their airspaces.
“It is a lot of service they are consuming in that respect,” said Mr Mburugu, adding, “And it must be a significant payout for them” to have made them lobby for the exemption.
Introduced through amendments to the Income Tax Act, the SEP tax is charged at 30 percent of a deemed profit equal to 10 percent of gross turnover, which effectively means companies pay three percent of gross turnover earned from digital services in Kenya.
Global tech giants such as Amazon, Microsoft, Netflix, Facebook and Alibaba operate in Kenya through the internet without a physical presence, and therefore do not pay income tax under traditional permanent-establishment rules.
The levy replaced the Digital Service Tax, which mostly targeted foreign companies selling goods and services online at 1.5 percent.
Following the Finance Act 2025, KQ was also exempted from withholding tax on payments to non-resident providers for specialised technical, maintenance, compliance, training, or digital systems support where such services are unavailable locally.
Maintenance remains a costly element for KQ, which often relies on foreign specialists for services such as engine overhauls across its fleet.
