Ride-hailing services, online freelance jobs and food delivery companies face a tougher 6% tax, as the Treasury revived a proposal to raise revenue from these sources.
In its new proposals, the Treasury proposed a new significant economic presence (SEP) tax at a rate of six percent, four times the 1.5 percent it initially proposed under the DST.
“The draft law seeks to amend Section 3 of the Income Tax in the definition of the term ‘digital market’ by including ‘passenger transportation services’, ‘food delivery services’, ‘independent services’, ‘professional services’ etc.,” the Treasury said in the draft. Tax Procedures (Amendment) Act 2024.
She said that the proposals aim to expand the tax base by bringing the income of owners of digital platforms that provide the above-mentioned services into the tax bracket.
“The proposed amendment aims to replace the digital service tax with a large economic presence tax to save taxes at 6 percent as against 1.5 percent under the digital service tax. This will bring the taxation of digital services into line with international best practices,” the Treasury said.
The digital service tax was introduced in 2021, and is currently levied on the sale of e-books, movies, music, games and other digital content. This means that companies like Netflix, Spotify, Amazon, YouTube, etc., pay tax on their sales.
With the proposed changes, more companies in the digital services space, such as Uber, Bolt, Glovo, Jumia and others, are set to join the tax bracket, which is likely to impact the cost to the end consumer.
The tax will only be imposed on foreign companies providing these services in Kenya, while local companies will be excluded because they are expected to pay corporate income tax of 30 percent on their profits.
This is the second time that the Treasury has put forward a proposal to expand this definition, the first being in the withdrawn Finance Bill 2024, which sparked widespread protests across the country against the proposed tax measures.
The Treasury said the SEP tax would be paid by a non-resident who derives his income from Kenya.
“This tax must be paid by a non-resident person who derives income from providing the service in Kenya or accumulates it through business conducted through the digital market,” she said.
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