Ride-hailing services, online freelance jobs and food delivery firms face a steeper six percent tax as the Treasury revived a proposal to raise revenue from these sources.
In its new proposals, the Treasury has proposed introducing a new significant economic presence (SEP) tax at a rate of six percent, four times the 1.5 percent that it had initially proposed under the digital service tax.
“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” etc,” the Treasury said in its Tax Procedures (Amendment) Bill of 2024.
It said that the proposals aim to broaden the tax base by bringing the income of the owners of the digital platforms that offer the above services into the tax bracket.
“The proposed amendment is intended to replace the digital service tax with significant economic presence tax to provide taxation at 6 percent as opposed to 1.5 percent under digital service tax. This will align the taxation of digital services with international best practice,” the Treasury said.
Introduced in 2021, the digital service tax is currently being levied on the sale of e-books, movies, music, games and other digital content. This means that companies such as Netflix, Spotify, Amazon and YouTube, among others, pay the 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 levied on foreign companies offering these services in Kenya, as local companies will be spared because they are expected to pay 30 percent corporate income tax on their profits.
This is the second time the Treasury is making the proposal to expand this definition, the first being in the withdrawn Finance Bill, 2024, which sparked widespread protests across the country against the proposed tax measures.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 that the SEP tax would be payable by a non-resident person whose income is derived from Kenya.
“This tax shall be payable by a non-resident person whose income from the provision of service is derived from or accrues in Kenya through a business carried out over the digital marketplace,” it said.
