Treasury Cabinet Secretary John Mbadi has clarified the proposed introduction of a 15 per cent tax on social media and internet services that has sparked uproar among social media creatives.
The proposal is contained in the Tax Laws (Amendment) Bill, 2024, sponsored by majority leader Kimani Ichung’wah and is currently before the National Assembly.
According to the National Treasury, the Bill seeks to amend section 3 of the Income Tax in the definition of the term “digital marketplace” by including “ride-hailing services” “food delivery services” “freelance services” and “professional services” among others.
Speaking when he appeared before the National Assembly’s committee on Finance on Thursday, November 14, Mbadi strongly denied reports that the government is “raiding” social media as it seeks to increase its revenue base.
CS Mbadi clarified that it does not target local users but owners of those platforms.
Mbadi argued that it makes no sense for Kenyans to pay taxes for the use of social media, yet the owners of those platforms are exempted.
“I have heard people talk about social media space and then they say, these people are just creative which is true, our people are very creative. They are using platforms of people out there, why would we just tax our Kenyans who are using that platform, but the owners of the platform are not paying anything?” questioned Mbadi.
Mbadi defends new tax proposal
The CS further added that the tax proposal is compounded by the fact that foreign firms which own the social media platforms depend on factors such as good internet infrastructure enabled by the government.
“When we make the proposal people don’t understand it quickly saying that the government is raiding social media space. Farther from the truth, we are saying if you are doing business here and you are out there, you must leave part of the proceeds here to benefit this economy because we have made the infrastructure for you, there is that internet connectivity that you are using,” added Mbadi.
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If passed, the tax contained in the Tax Laws (Amendment) Bill would be added to the cost of any fees charged to users for accessing the internet or social media platforms.
The Income Tax Act is to be amended to introduce a new tax known as a significant economic presence tax.
Amendments
It shall be payable by non-residents whose income from the provision of services is derived from or accrues in Kenya through a business carried out over a digital marketplace.
“For the purposes of this section, a non-resident shall be considered to have a significant economic presence where the user of the service is located in Kenya,” reads part of the Bill.
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It shall, however, not apply to a non-resident providing digital services to an airline in which the government has at least 45 per cent shareholding.
Kenyans have raised fears that this tax while targeting service providers, is likely to be passed on to them in the form of higher data and internet bundle costs.
The Bill also proposes a reduction in the exercise duty on telephone and data services from the current 15 per cent to 12 per cent in a bid to address the cost of communication services.
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