Kenya Revenue Authority (KRA) has said it will exercise caution before signing an inclusive international framework agreement to reform how multinational tech firms pay digital tax.
This follows a recent announcement by the Organization for Economic Co-operation and Development (OECD) that significant reform of the international tax system has been finalized, to ensure that Multinational Enterprises (MNEs) are subjected to a minimum 15% tax rate from 2023.
The government agency has expressed concerns that it could lose huge digital tax revenue it collects from multinational technology firms if the minimum 15% tax rate is implemented.
With Estonia, Hungary and Ireland having joined the agreement, this proposed framework is now supported by all OECD and G20 countries.
However, Kenya, Nigeria, Pakistan and Sri Lanka have not yet joined the agreement.
Digital Tax in Kenya
“The introduction of the Digital Service Tax in Kenya had helped curb tax avoidance by multinational firms engaged in digital enterprises. With the growing revenues generated from such MNE’s, Kenya will consider the benefits of the Inclusive Framework cautiously,” commented KRA Commissioner General Githii Mburu while speaking at the agency’s annual Tax Summit forum.
He added that Kenya had shared its technical concerns and was party to the ongoing developments spearheaded by the OECD and G20 countries.
The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (IF) has agreed on a two-pillar solution to address the tax challenges arising from the digitalization of the economy.
The KRA Commissioner-General said he was actively consulting and has shared a detailed technical proposal with the OECD to ensure a win-win outcome in the ongoing global developments focusing on the taxation of digital sector players.
Mburu said Kenya will clinically analyze benefits accruing from the proposed framework and will not rush to forego current benefits arising from the implementation of the Digital Service Tax.
“Although we have not signed the agreement, Kenya is fully aware of the developments, and I can confirm that we are party to these engagements, as a trendsetter on matters digital taxation.”Mburu said.
Kenya’s position on the Inclusive Framework was supported by Panama based Executive Secretary of the Inter-American Center of Tax Administrations (CIAT), Márcio Verdi.
Nigeria has also supported Kenya’s position noting that the Inclusive Framework had deviated from the earlier agreed mandate of developing a solution to address tax challenges for the digital economy.
“It was widely held that a multilateral approach would be the most appropriate means of achieving a standard set of coordinated rules which would strengthen the international tax system. However, the reality we now faced is a far cry from expectation,” said Mathew Gbonjubola- Federal Inland Service Nigeria Group Lead, Special Tax Operations Group.
OECD confirmed that 136 countries and jurisdictions representing more than 90% of global GDP had agreed to the all-inclusive framework.
The framework focusing on reforming the international tax system is also expected to facilitate the reallocation of more than US$ 125 billion of profits from around 100 of the world’s largest and most profitable MNEs to countries worldwide.
The idea is to ensure these firms pay a fair share of tax wherever they operate and generate profits.