The Kenya Revenue Authority plans to push through new rules that will compel international technology giants doing business over the Internet to disclose revenue they generate in the country.
The regulations aimed at reducing revenue leakage through tax avoidance, which in itself is not illegal, are part of modification of Transfer Pricing Rules 2006 in the ongoing overhaul of the Income Tax Act, 1973.
The taxman targets such firms as US e-commerce giant Amazon, search engine Google and Facebook which are believed to rake in millions of shillings in profit from online transactions, but prefer declaring profit they make in low-tax countries.
“Most (e-commerce) businesses are done on Amazon, Google and the rest,” KRA outgoing commissioner-general John Njiraini said recently.
“As we have seen, the bigger problem is that these institutions have the capacity to create structures that allow them to do business in many jurisdictions and get the money paid in jurisdiction of their choice. The global response has been bringing all the countries together and have a discussion.”
Kenya hopes to use its seat on the steering committee of OECD-led Global Forum on Transparency and Exchange of Information for Tax Purposes to access revenue data by the targeted tech firms in various countries.
“That’s what we may do as a country, but we are not able to address it unless there’s a proper global response,” Mr Njiraini said.
The agency has been looking at reducing revenue loss from digital firms which earn profit through online transactions in Kenya without giving the taxman his share. In March 2017, KRA asked legislators to come up with a special law to regulate collection of taxation from taxi-hailing firms, with a key focus on US-owned Uber.
Commissioner for Domestic Taxes Benson Korongo told the Transport Committee of the National Assembly at the time that the agency was not satisfied with the revenue share from Uber.
The proposal by the KRA was to link the app used by taxi-hailing firms – a booming e-commerce business due to its ease of accessing the services and security – to the KRA system, thus enabling the taxman to estimate profit generated by looking at revenue.
The proposed taxation rules for e-commerce are expected to fall under transfer pricing – a situation where multinationals sell to parent or subsidiaries abroad at lower prices leading to declaration of lower earnings or even losses, thus denying KRA billions of shillings in tax revenue.