Give Caesar What Belongs To Caesar – A Tax Webinar

It is said, points out Rose Mwaura, Chair Institute of Certified Public Accountants of Kenya (ICPAK), and CEO & Principal Consultant Rockville Consulting Limited, that as of last year, goods and services $3 trillion worth of activity trading in digital marketplaces. And that in Kenya, mobile penetration stands at 114 per cent. “This was, of course, accelerated by the COVID-19 pandemic. Anyone who did not want to leave their house has moved online and is using those tools and technologies to buy. This morning I was fighting my children to get online, but luckily they are on half-term so I could get at least enough bandwidth to log in and do this presentation.”

The Cabinet Secretary, National Treasury and Planning, Ambassador Ukur Yatani declared that we are looking at a budget of Kshs2.8trillion which must come from somewhere. Kshs1.6 trillion would come from the Kenya Revenue Authority (KRA), we would borrow some and get grants, appropriations in aid leaving a deficit of Kshs840 billion that the National Treasury and KRA will have to bridge. Hence the CIO East Africa webinar yesterday on Kenya’s Budget Analysis And The Dash To Digital Taxation.

As Rose notes, over the last few years, revenue collections had improved to Kshs1.4 trillion in 2019. But with the pandemic, not much growth is expected in 2020. Öf course that tells you there has been lots of pressure within the government to raise money. “We at the institute have for quite a long time been encouraging the National Treasury to expand the tax base. For some time now, it was mainly corporates, anyone with a paycheck because of PAYE, VAT, and all other import duties. They have been trying to do that incrementally; for instance, we had the Rental Income Tax that came to a couple of years ago. The digital market space was next frontier. It wasn’t until 2019’s Finance Act that language was introduced around this. It was therefore not surprising that this came up. The challenge was a lack of clarity. But as we moved along, in 2019, there has been a lot more clarity, and we are beginning to see it.”

“the digital market space was next frontier. It wasn’t until 2019’s Finance Act that language was introduced around this. It was therefore not surprising that this came up. The challenge was a lack of clarity. But as we moved along, in 2019, there has been a lot more clarity, and we are beginning to see it.”

Digital services tax says anyone running a digital market place must pay at least 1.5 per cent of the gross turnover generated from the said digital marketplace. “At ICPAK, we had recommended the government not apply this digital service tax to the local companies because they are already paying 30 per cent. But what I have seen from what has come off some of the notes of parliament, the thought process is that for local companies this will be an advance tax that they will be able to offset against their corporation tax at 25 per cent currently. Still, at the international companies, this is going to be a final tax.” This has been a global conversation with OECD. It resulted in a turf war between the US and France. As of now, the US has withdrawn from talks.

Read our budget analysis on digital taxation The Digitisation Of The Economy Will Cost You A Pretty Penny

Rosemary Koech-Kimwatu, Head of Public Policy, Oxygene MCL sheds further light. According to Thursday’s parliamentary discussions, roughly 40 per cent felt it is a tax targeting the youth – they presume digital is all about the youth. The other 40 per cent supported it saying it would teach young ones to pay taxes, while 20 per cent said to go ahead but with checks and balances. “Let us watch the National Assembly. The buck stops with them. Any decisions being made as to what this taxation will look like, lies with them. That is when we will know if and when this tax will apply. There have even been requests from local companies who claim they already pay 14 per cent VAT as it is on their daily operations.

She adds that with the Finance Act finally explaining the digital economy, there are still anxieties around it. Whether “the definition is adequate because we all interact digitally every which way as buyers, sellers, platform owners, platform users. But. At which point would this be applied to avoid the instance of double taxation? At which point would taxation appear; how else would it be applied to avoid instances of double taxation? Supposing, you run a small business locally. Usually, you sell things online and have been filing your returns filing returns and all. But if you introduce 1.5 per cent tax on the total gross, what does that do to your small SME?”

“Global digital taxation has been a nightmare for everybody across the globe but especially for the US. The giants in the digital economy are from the US. If we are going to start taxing these entities across the globe in different countries, the US will have a lesser share of tax.”

Esther Kinuthia, Senior Manager, KPMG “I was reading an article in the New York Times on how the US has withdrawn from global digital tax talks. Global digital taxation has been a nightmare for everybody across the globe but especially for the US. The giants in the digital economy are from the US. If we are going to start taxing these entities across the globe in different countries, then the US will have a lesser share of tax amount they can easily collect from these big giants. So, obviously, the US is very interested in this. They are not happy that across the world people are trying to bring in digital service tax.”

India has already started to impose it, bringing in these laws and applying them in over the past couple of years. They have been met with stiff immigration policies by America. France tried and earned sanctions against wine, cheese and kitchenware. OECD has been trying to come up with measures on how to tax globally because this is not a country-specific problem. Thing is though, how do you tax this string of transactions a person makes say in a day?

What the commissioner-general has done is to empower agents to collect tax on his behalf. You could be an agent. Remit 1.5 per cent; withhold it, and it immediately becomes your problem. But what if these countries are getting an additional burden that will make them question the need to stay here, operating in a country where the tax positions can be quite punitive? Would they still need to comply? It could also make people who have brought about the digital economy shy away, and we would be the biggest losers. This is where the Chief Information Officers (CIOs) will need to step in as the liaison between the parliamentarians, taxpayers and KRA and break down the complexities of digital tax.

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