Amend ICT tax laws to spur State digital plan

A fibre-optic cable company worker.  

Photo credit: File photo | Nation Media Group

Last week, the Cabinet held its first meeting of the year and top on the agenda was the Kenya Kwanza multi-billion shilling digital transformation project.

President William Ruto is keen to build on the gains made in the country’s ICT sector over the past decade and reports indicate that public officials across the government have been urged to prioritise the ambitious undertaking.

Kenya seeks to automate provision of over 5,000 public services within six months and reports says over 1,200 services have been on-boarded on the e-Citizen platform.

This is a significant undertaking whose direct results - business process automation, digitisation of records, data sharing and analytics across multiple agencies - will impact how both individual Kenyans and companies interact with the government on a daily basis.

Alongside the digitisation of public services, the government has further outlined a plan to build 100,000 kilometres of fibre optic cable, 25,000 public Wi-Fi hotspots and the establishment of Digital Village Smart Hubs and Studios in each of the country’s 1,450 wards.

If executed correctly, this could open up regions across the country that have been previously left out of the digital adoption witnessed in the past few years, and help bridge the yawning divide.

For this to happen, the National Treasury and Members of Parliament need to ensure that laws pertaining to investment in ICT and the taxation of its goods and services are updated to the current economic realities.

The first question is on financing the ambitious infrastructure project whose return on investment is unlikely to be realised in the short term.

Last year the government unveiled the Kenya Digital Masterplan 2022-2023 with a detailed breakdown of the projects the state wishes to undertake and their average cost.

This included Sh118 billion to extend the National Optic Fibre Infrastructure (NOFBI) project to 52,000 kilometres, Sh60 billion to set up 48,000 kilometres for private networks, homes and businesses and Sh20 billion to install 25,000 hotspots in public spaces.

The Kenya Kwanza digital infrastructure plan is not dissimilar to the 10-year ICT masterplan revealed last year and both will require the deliberate legal intervention of some crucial legislation for effective implementation.

In the first place, the National Treasury should ensure that the existing public-private partnership (PPP) framework is optimised for raising the massive funds mentioned earlier at the lowest possible cost.

With high levels of public debt and the rising cost of servicing the same, the government has a low ceiling on how much taxpayer funds can be allocated to ICT investments, particularly in the shadow of a looming global recession.

Bilateral and development partners, donor agencies and the private sector will likely pick up a big portion of the capital spending required to realise the State’s digital dream.

Entities such as the World Bank and China’s tech giant Huawei are at the forefront of some significant digital infrastructure outlays.

With numerous international and local entities lined up to provide policy and/or financial support, the Treasury and MPs have a key role in defining the rules of engagement and safeguarding the interest of Kenyans.

Some of the recent laws such as requirements that foreign ICT firms should have 30 percent local shareholding by March 2024 should be reviewed to ensure a balance is struck between incentivising investors to take a risk and promoting local startups.

At the same time, State regulators such as the Communications Authority of Kenya (CA) should conclude the review on crucial guidelines touching on digital resources such as spectrum and broadband distribution licenses are reviewed and simplified.

This will ensure the participation of local firms and that small and medium enterprise (SMEs) are not left out in the business opportunities that will arise from the infrastructure projects across the country.

The government should uphold the interest of local businesses and industries by ensuring requirements such as technology transfer and procurement quotas for youth, women and persons with disabilities are adhered to.

There are lessons to be learned from the country’s past on the importance of embedding robust legislation into multi-billion transformation projects.

Banking sector reforms instituted under the Kibaki regime in the early 2000s were accompanied by legislative changes pertaining to capital adequacy ratios and lending rates giving local institutions an equal footing to compete with deep-pocketed multinationals.

The overall result was an unprecedented growth in credit to both individuals and businesses as local banks were driven to innovate more products and compete on value propositions and pricing models.

Similarly, the ICT sector reforms in the second half of the 2000s were accompanied by tax incentives and waivers such as the zero-rating of mobile devices that drove the uptake of smartphones ushering in brands like Tecno and Infinix that later became a staple in Kenya’s digital consumer market.

The writer is the CEO Maudhui House, a Public Affairs Consultancy ‚Äď [email protected]

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