Thread: Why Kenya and other countries are introducing Digital Taxes? Why now?

Now,the current tax laws & international tax framework (which dates back to the 1920s) was designed at a time when businesses were largely brick-and-mortar (physical stores).Then, it was unimagineable for a biz to operate in another country without some form of physical presence
Thus, in most countries, for a business to be pay corporate tax it has to have some form of nexus there (e.g. Kenya). Either it's registered here, or it's managed from here or it has what we call a permanent establishment (also implies some form of physical presence)
Fast forward to today, there are numerous companies that are able to operate in multiple countries without having any physical presence in those countries. Consider social media platforms or streaming services, with a device, connection & subscription you can access their service
...and they don't have to have any physical office or employees etc in Kenya for them to deliver the service to you. I mentioned above that to be subject to corporate tax here, a company would have to have some form of nexus here in Kenya, these companies, don't.
Since such companies don't need to have a physical presence here, they can easily generate income from Kenyan users, book them in countries with low tax rates & end up paying minimal taxes in Kenya despite generating the income here (kuna exceptions e.g. payments sub 2 WHT).
Example, a music streaming company receiving subscription fees from Kenyan subscribers without any office/physical presence in Kenya & receiving the funds in a company registered in the virgin islands. See how that works - minimal or no tax paid here in Kenya.
This isn't just a Kenyan problem, it's a problem for many countries especially developing countries that lose out on revenues from these outflows. Let's continue...
Now, global economies (via the OECD) have been working on a new international tax framework that will be able to address the tax challenges arising from the shift to digital. Considering that the "digital economy" transcends national boundaries, only makes sense...
...to have international consensus on how to tax the digital sector. Also, whereas we can separate digital from main econony today, this distinction wont be relevant I'm future as tech/digital will have been fully integrated into the main economy (lack of better words).
But it's still uncertain if & when this international consensus will be reached, so several countries (France, Japan, India & now Kenya) have moved ahead to introduce digital taxes pending any consensus. Scoop a bit of the digital revenue as the world attempts to agree.
Of course, this comes at a time when Kenya has a serious budget deficit to address amidst not-so-promising revenues. So aside from limiting the income not (appropriately) taxed here, the digital tax is to generate extra revenue for the exchequer.
So essentially, through the lens of Kenya & other countries introducing digital taxes, the tax will ensure that these foreign digital companies operating in Kenya & not paying a fair share of taxes...get to pay tax here (& in those countries), hence ensuring fairness in taxation
However, I should point out that while for Kenyan businesses & individuals the digital tax will be an advance tax...for certain businesses they may not be able to recover the tax paid in time or ever & thus a negative impact. Including the negative impact on cash flows.
So, hopefully, this year will provide lessons for Kenya on how to ensure fairness by targeting the foreign digital companies & minimizing the collateral damage on Kenyans and Kenyan businesses. End/
Thanks for reading:) I may have missed sth or some things may be lost in translation, but I hope this makes sense. I'm always open to learning. Cheers.

More from Economy

One of the hardest problems post-pandemic will be how to revive so-called "left behind" places.

Post-industrial towns, run-down suburbs, coastal communities - these places were already struggling before the crisis and have fared worst in the last year.

What should we do?

Today, @ukonward sets out the beginning of a plan to repair our social fabric. It follows our extensive research over the last year, expertly chaired by @jamesosh, and funded by @jrf_uk, @Shelter and @peoplesbiz.

https://t.co/d3T5uPwG9N


Before I get into recommendations, some findings from previous Onward research.

In 2018, we found 71% of people believe "community has declined in my lifetime"

In 2019, we found 65% would rather live in “a society that focuses on giving people more security” vs 35% for freedom


This was the basis for our identification of 'Workington Man' as the archetypal swing voter in 2019, and led us to predict (correctly) that large numbers of Red Wall seats could fall. A key driver was a desire for security, belonging and pride in place.


There is also a key regional dimension to this. We also tested people's affinity with the UK's direction of travel, across both cultural and economic dimensions - revealing the extraordinary spread below: London vs. the Rest.
https://t.co/HrorW4xaLp

You May Also Like

Margatha Natarajar murthi - Uthirakosamangai temple near Ramanathapuram,TN
#ArudraDarisanam
Unique Natarajar made of emerlad is abt 6 feet tall.
It is always covered with sandal paste.Only on Thriuvadhirai Star in month Margazhi-Nataraja can be worshipped without sandal paste.


After removing the sandal paste,day long rituals & various abhishekam will be
https://t.co/e1Ye8DrNWb day Maragatha Nataraja sannandhi will be closed after anointing the murthi with fresh sandal paste.Maragatha Natarajar is covered with sandal paste throughout the year


as Emerald has scientific property of its molecules getting disturbed when exposed to light/water/sound.This is an ancient Shiva temple considered to be 3000 years old -believed to be where Bhagwan Shiva gave Veda gyaana to Parvati Devi.This temple has some stunning sculptures.