Kenya is committed to introducing the Significant Economic Presence (SEP) tax which will target the digital marketplace and is lobbying its partners in the East African Community (EAC) to add it to regional tax policies.
- The suggestion to broaden taxation on digital services in the region was raised during the 52nd East African Revenue Authorities Commissioners General Meeting convened in Nairobi.
- In the meeting opened by Treasury Cabinet Secretary John Mbadi, the revenue administrations have been requested to adopt frameworks for taxing SEP on foreign firms.
During the meeting, Mbadi called upon the regional revenue authorities to enhance collobarative strategies that will maximise domestic tax collections and imbue self-reliance. He said that this could be achieved by harmonizing tax policies and procedures in the region through consistent engagement with the East African Community secretariat.
“It is wrong for us Africans, some of whom senior government officials, boarding planes in expensive suits with huge delegations flying for long hours across Europe and America going to beg for financial aid,” Mbadi said.
The regional tax revenue growth stood at 13.3% in the 2023/2024 Financial Year. Although GDP growth projections for many of the EAC member states sit above 5%, increasing budget expenditures are set to broaden deficits and soar demand for aggressive domestic revenue mobilization.
Mbadi said that Kenya was eyeing revenue mobilization of 17% of the GDP under the Medium Term Revenue Strategy. He said that this would garner over KSh 450 billion that would slash foreign debt reliance. However, to achieve this, the government would need to renew the confidence of business owners and broaden the tax base.
The bi-annual meeting also sought to discover ways the region can stamp out cross-border smuggling that hemorrhages crucial revenues in individual countries. The Institute for Security Studies (ISS) reports that Kenya loses over KSh 32 billion every year through the entry of untaxed goods such as liquor and sugar.
The commissioners perceived that creating uniform valuation of goods across the region and expediting faster information sharing on exports were formative ways of dealing with smuggling. They also agreed to ratify the Double Taxation Agreements (DTAs) and rationalise tax exemptions uniformly across the region to enhance collaboration.
KRA has clamored for the use of technology in nabbing tax cheats. Last month, the authority’s Commissioner General said that they were exploring Artificial Intelligence (AI) and Machine Learning to analyse data sets that will identify tax evasion patterns.
The regional tax heads have been sensitized to consider the transformative potential and they agreed to develop legislative frameworks that will guide decision-making on this front. The next meeting of the revenue authority chiefs will be held in Rwanda on May 2025.
