The World Bank Endorses Kenya’s New Digital Tariffs.
The World Bank has expressed its support for Kenya’s efforts to expand the reach of taxation in the digital marketplace. These measures aim to broaden the tax base and boost domestic revenue mobilization, particularly as the country faces challenges in raising financing from external sources. The introduction of Value Added Tax (VAT) on digital supplies and the implementation of withholding tax on financial derivative gains by non-residents are expected to generate an additional tax revenue of approximately Sh93.6 billion ($936 million) by 2024, equivalent to 0.7 percent of GDP.
The Kenyan government has issued VAT regulations to govern supplies made through the digital marketplace, including provisions on registration, tax representatives, accounting, and payment of tax. These regulations will complement existing reforms aimed at expanding the revenue base and improving compliance to prevent evasion, corruption, and money laundering.
The World Bank has also praised Kenya’s efforts to streamline the Excisable Goods Management System (EGMS), which aims to enhance the collection of excise tax and combat illicit products. Recent amendments to the EGMS regulations include changes to excise stamps, exemptions, disposal of forfeited goods, and administrative procedures, such as notifications to owners of seized goods. These measures seek to promote fair administrative justice and ensure compliance in the excise tax system.
In the financial year 2023/24, the Kenyan government aims to mobilize Sh2.5 trillion ($25 billion) in ordinary revenue, placing pressure on the Kenya Revenue Authority (KRA) to meet ambitious targets. To support revenue generation, the Finance Act of 2023 has introduced a Digital Assets Tax, which imposes a 3.0 percent tax on the gross fair market value consideration received or receivable for digital assets such as cryptocurrencies.
Opinion: Kenya’s efforts to widen taxation in the digital marketplace are essential for strengthening domestic revenue mobilization and reducing reliance on external financing. By implementing VAT on digital supplies and introducing withholding tax on non-residents’ financial derivative gains, the government aims to capture revenue from the rapidly growing digital economy. However, it is crucial to strike a balance that promotes compliance and revenue generation while not stifling innovation and hindering the growth of the digital sector. Continued collaboration between the government, tax authorities, and relevant stakeholders will be crucial in implementing effective tax measures that foster economic growth and ensure fairness in the tax system.