Kenya, known as Africa’s Silicon Savanna, is facing significant tax changes that could impact digital service providers. The proposed Finance Bill 2024 suggests replacing the current 1.5% Digital Services Tax with a much higher 30% Significant Economic Presence Tax for certain non-resident digital businesses in Kenya. For local digital operators, their tax obligations might quadruple from 5% to 20%. Additionally, excise duties on critical services like telephone, internet data, mobile money transfers, and remittance fees could increase from 15% to 20%. This could make services like M-Pesa more expensive, affecting millions of users.
The doubling of excise duty on betting activities could also impact the rapidly growing online gambling sector, where a significant portion of Kenya’s youth is involved. These tax measures, driven partly by IMF requirements, aim to increase tax revenue from the digital economy. However, there are concerns that such steep tax hikes could stifle innovation and entrepreneurship in Kenya’s tech and startup ecosystem. Furthermore, there are privacy concerns regarding granting the Kenya Revenue Authority access to personal data, and penalties for non-compliance with electronic tax systems could pose challenges, especially for smaller startups. Ultimately, while the intention may be to boost tax revenues, there’s a risk that these measures could hamper the growth of key sectors like mobile money, e-commerce, fintech, and online betting, which are crucial drivers of Kenya’s technological transformation and economic growth.
