Why Finance Bill threatens to stunt digital economy


We have come from a fantastic run over the past few months. Good traction across many sectors. Corporates and startups recovering from the woes of the Covid-19 pandemic to the government updating ambitious but realistic blueprints and masterplans aimed at driving the digital economy.

The digital economy is “the entirety of sectors that operate using digitally-enabled communications and networks leveraging the internet, mobile and other technologies irrespective of industry”.

The Kenya National Digital Masterplan 2022-2032 is a joy to read. Its framework is in four pillars; digital infrastructure, digital services, data management, digital skills, and digital enterprises innovation and businesses.

The long game looks promising, supported by a healthy market pulse from companies servicing various value chains. Equity Bank's recent results saw fintech revenue grow 9 percent to hit Sh2.3 billion. Its e-commerce revenues grew 21 percent to hit Sh381 million.

Meshack Alloys, CEO at Sendy, a tech company that builds fulfillment infrastructure for e-commerce and consumer brands, said orders for their fulfillment service targeting online businesses grew 540 percent from the previous quarter, and customers tripled over the same period.

They bundle last-mile logistics, fulfillment centres, and payments in support of a direct-to-consumer model with over 1,000 online retailers and more than 7,000 unique products.

The CEO of a leading online marketplace that additionally provides payment and logistics shared some average monthly volumes for key segments on their platform.

Fashion and beauty is Sh160 million, beverages which covers water, wine and beer is at Sh100 million, fast-moving consumer goods S 150 million and electronics is at Sh650 million. This point to the growing adoption of digital channels in the sales of goods and services.

In comes Treasury with a Finance Bill that proposes to increase excise tax on practically entire value chains. For example, motorbikes, the primary last-mile option will see duty rise by 10per cent affecting their financing options and operations on top of runaway fuel prices.

Cosmetic and beauty products revised to 15 per cent and beverages between 4 - 20 percent depending on the category. The market still has to contend with the Digital Service Tax, ‘payable on income derived or accrued from services offered through a digital marketplace’ pegged at 1.5 percent of the gross transaction value exclusive of value-added tax.

For our digital economy ambitions to have a fighting chance, where the majority adopts local products and services, where trade and commerce run sustainably, the Finance Bill must be overhauled.

The only outcome from its current state is the downside of the Laffer Effect. Revenue targets will fall short from suppressed demand and business closure. The domino effect can and will be brutal.

Njihia is the head of business and partnerships at Sure Corporation | | @mbuguanjihia