Owners of digital taxi-hailing firms and partner drivers are facing a huge tax demand from the Kenya Revenue Authority (KRA) in an ongoing audit of their income, it has emerged.
More than a dozen digital taxi-hailing operators in the country are under tax audit for value added tax (VAT) on the apps they “supply” to the drivers as well as commissions paid to them from customer rides.
In a report to the Senate Committee on Labour and Social Welfare, the KRA claims drivers have also not been paying up taxes on their earnings.
“Further, under the VAT Act 2013, the provision of the platform services for use by partner drivers is a taxable supply,” KRA says.
The taxman is targeting tens of millions of shillings from the nascent industry.
Some of the digital taxi-hailing firms are registered in foreign countries, with their local subsidiaries only dealing with marketing aspects of the business, making it difficult to determine how much tax they owe KRA.
The local subsidiary of Amsterdam-incorporated Uber B.V, for example, only handles marketing and support services to partner drivers, while Bolt Kenya (formerly Taxify) is registered in Estonia.
Other players in the fast-growing digital taxi space include the Safaricom-backed Little, Jimcab and the latest entrant, Swvl, which provides an online bus-booking app for public transport.
KRA’s tax collections from the industry, which started operations in January 2015 with the launch of Uber, jumped more than half to Sh232.9 million in the financial year ended June 2019 from Sh151.3 million a year earlier, the taxman says in the report.
The revenue has surged 213.46 percent compared with Sh74.3 million that the KRA netted in the 12 months through June 2017, reflecting growth in the industry that is largely concentrated in Nairobi and Mombasa.
KRA, however, believes he is not getting all its dues from the taxi-hailing firms, citing the ongoing audit that established it was owed Sh34.42 million from one firm alone in corporation, payroll, VAT and withholding taxes.
The taxman says the digital cab players are under Section 3 of the Income Tax Act required to pay all taxes accrued or derived in Kenya whether resident or non-resident in the country.
“The main challenge in taxing taxi-hailing cab applications is that of enforcement since tax on commissions paid to non-residents is collected through the Withholding Tax regime, which requires partner drivers to withhold tax as they pay commissions,” KRA says.
“Enforcement of tax on the income of the partner drivers is also a challenge due to lack of information on drivers.”
KRA says Uber has, for instance, cited data protection laws such as Dutch Privacy Act and the European Union’s General Data Protection Regulation to deny it access to information on payments made by drivers.
Uber did not immediately respond to our emailed questions over the ongoing audit.
Tech firm Craft Silicon, the owner of Little, said the taxman has been “in touch” over the ongoing audit and that the issue has propped up at past sensitisation seminars, but maintained the company was tax-compliant.
“On corporate right, we raise invoices to them and we have been told that tax and VAT have been appropriately applied. For individual right, the clarity is not there because there’s no invoice we raise as it’s the drivers who pay us money,” Craft Silicon founder and chairman Kamal Budhabhatti said.
He, however, said the firm was not aware they are required to pay VAT on apps, arguing the apps were “freely available for download” online.
“We are hoping the government comes up with clarity on withholding tax (on commissions paid) by the drivers. We are supportive of them, but they should make clear whatever they want to do so that moving forward we make appropriate changes in our business,” Mr Budhabhatti said.
Digital Taxi Association of Kenya chairman David Muteru maintained that drivers have not been deducting any cash on commissions they pay app providers “because they (app providers) determine and divide the payments”.
The Treasury has in the Finance Bill 2019 sought to clarify that digital transactions are also taxable.
The taxman says non-resident taxi-hailing app operators will also be required to post a representative in Nairobi to account and pay taxes in Kenya if legislators back the proposed interventions, including those through the Income Tax Bill 2019.