President William Ruto has announced a plan by his government to scrap the 1.5 percent levy on digital services in a U-turn that will see Kenya adopt the contentious global framework on taxing multinationals.
While Kenya had been opposed to the framework proposing a 15 percent minimum tax rate on global firms, President Ruto has expressed a change in tone which will see Kenya sign up to the pact by the Organization for Economic Cooperation and Development (OECD) ahead of its implementation on January 1, 2024.
“The growth of digital commerce has forced many countries to impose Digital Services Tax measures on income derived in their jurisdictions. Kenya has also done the same. Following discussions with players in this sector, we have committed to review this tax regime and align it with the two-pillar solution currently being developed by the OECD inclusive framework,” President Ruto told investors at the American Chamber of Commerce Regional Business Summit on Thursday.
Under the former administration of President Uhuru Kenyatta, Kenya withheld its backing for the global minimum tax rate which would have seen the government pause the collection of the digital services tax from tech giants such as Google, Facebook and Amazon.
Kenya expressed its discomfort which clauses in the agreement which would have seen the end of the digital service tax which is currently charged at the rate of 1.5 percent of sales made by foreigners in the country.
“Members who join the statement are obliged to withdraw their unilateral measures imposed on non-resident companies which do not have a physical presence in the market jurisdiction,” said the then Kenya Revenue Authority Commissioner for Intelligence and Strategic Operations, Terra Saidimu.
The digital services tax which came to effect on January 1, 2021, is levied on the sale of e-books, movies, music, games and other digital content with KRA projecting collections of up to Sh13.9 billion from the levy within three years of application.
The taxman had collected Sh174 million from the tax in six months to December which kept it on track to match and surpass the Sh241 million in collections recorded in the year to June 2022 with the KRA registering 178 firms under the tax.
Kenya’s rejection of the OECD minimum tax framework had been a hurdle to the negotiations on the free trade deal between Kenya and the US with the standoff having deemed the prospects for the deal’s conclusion.