At a time when Kenya’s economy is reeling from the consequences of Covid-19, the country’s Treasury Minister Ukur Yatani announced a USD 32 billion budget.
Fiscal policy interventions, including the implementation of a tax on the rich, are included in the proposals proposed to Parliament and slated to begin on July 1, 2020/21.
These include taxing the importation of aircraft, eliminating a tax break for federal workers who bring in their own cars while working overseas, and taxing digital services like Uber and Airbnb at 1.5 per cent.
Liquified Petroleum Gas, which was previously tax-free, will now be subject to Value Added Tax, which presently stands at 14%.
Environmental preservation and conservation would be undermined by this decision, which might lead rural residents to return to burning charcoal and wood because of the subsequent increase in their household’s ability to afford it.
Covid-19’s impacts have necessitated the creation of a $500 million fund to keep the economy afloat.
USD 3 million has been allocated to engage ICT professionals in the aftermath of the closure of schools to assist youngsters studying digitally. Additionally, the health sector has been given a budget of USD 1 billion to combat the spread of Covid-19. Investors taking advantage of tax benefits, including successful forex traders in Kenya as well, have seen large profit margins according to Mr. Yatani, who took over as Kenya’s new finance minister after Dr. Henry Rotich’s resignation. Consumers were insulated from high retail prices at a time of job losses and decreased family incomes when the government dropped VAT from 16 to 14 percent.
As a result, income tax was decreased from 30% to 25% of gross income, while corporation tax was reduced from 30% to 25% of gross income.
The growth rate of the economy this year has been tentatively anticipated by economists at 1.5 percent of GDP.
Taxation On Businesses And Online Traders
As a result of the COVID-19 epidemic, more organizations are turning to digitally-based solutions. Because of the increasing use of online and mobile platform transactions, companies have not entirely shut down. Internet and mobile-based company earnings have also been steadily increasing in this region.
In order to retain tax revenues, governments have naturally attempted to include digital income in their tax base. For some time now, governments like Kenya have been debating how to get a foothold in the global digital realm. Revenue from Kenya’s digital services sector is expected to rise from $1.9 billion in 2017 to $4.4 billion in 2022, according to projections.
For many Kenyan forex traders, the Kenyan Revenue Authority (KRA) is unclear about their legal tax responsibilities (KRA). It is very uncommon for traders to create trading accounts with forex brokers based in Kenya, but the KRA is unaware of the profits they have gained from their trades in the majority of cases. As a result, the money invested by these traders will remain in the United States.
It is a widely held misconception that traders’ earnings earned via the use of offshore trading accounts are exempt from U.S. taxation. A Kenyan resident who produces profit while living inside the boundaries of Kenya by trading on an offshore trading account must disclose the earnings in Kenyan Shilling in their tax filings as standard taxable income. It’s not the source of the revenue that matters, but rather the location of the individual who is earning the income.
Many nations’ tax laws do not apply to digital businesses, so they may avoid paying taxes on the money they generate. Tax regulations that allow businesses to maximize profits are also a major factor in companies’ decisions to locate in nations.
Some states have the power to levy taxes on corporations that are incorporated in their jurisdiction. If this isn’t the case, the government must show that the firm and the state have considerable ties.
Some nations in Africa have already implemented digital services taxes before the epidemic. For the first time, a digital service tax was included in Kenya’s 2019 budget report. These tax regulations, on the other hand, seemed hastily drafted and it was unclear who would be responsible for paying the tax.
The new digital service tax laws, which went into force in January 2021, are far more specific about who and what would be taxed. Kenya has once again pushed to broaden the scope of the digital service tax in its most recent budget report, released in June 2021. Another major issue that has confronted countries attempting to introduce a digital tax is being addressed by Kenya. Taxes are being collected in an equitable manner.
According to Kenya’s original version of the digital service tax legislation, it was described as tax payable on any revenue obtained through a digital marketplace. Direct engagement between customers and sellers of products and services is what the digital marketplace is all about. The bill levied a levy of 1.5% on all online platform revenue.
