Taxi-hailing companies are among the foreign businesses that could be significantly affected if a new proposal from the National Treasury gains approval from Parliament. National Treasury Cabinet Secretary John Mbadi announced in a newspaper notice on Friday that the National Treasury has drafted a Tax Laws (Amendment) Bill targeting ride-hailing services, food delivery, freelance, and professional services. These services will be classified as part of the digital marketplace if the bill is enacted into law.
“This definition is crucial for taxing income generated from businesses conducted over the internet or electronic networks, including the digital marketplace. This proposal aims to expand the tax base by including the income of digital platform owners,” stated Mbadi in his notice.
Additionally, the Treasury is proposing the introduction of a Significant Economic Presence Tax (SEP), which will apply to non-residents earning income from services provided in Kenya via the digital marketplace. “The proposed amendment will replace the Digital Service Tax with the Significant Economic Presence Tax, establishing a tax rate of 6% as opposed to the previous 1.5%. This adjustment aims to align the taxation of digital services with international best practices,” Mbadi explained.
This proposal first appeared in the Finance Bill 2024, which was withdrawn by President William Ruto amid Gen Z protests. The original bill sought to tax both resident and non-resident individuals who own or operate digital marketplaces, imposing a tax rate of 20% for non-residents and 5% for residents. It also included a significant economic presence tax set at 30% of deemed taxable profits.
However, the Gen Z movement rejected these tax measures, perceiving them as unfairly targeting their online businesses. In response to the proposed changes, Bolt has expressed opposition. George Abasy, Bolt’s public policy manager, highlighted that the introduction of the 6% SEP Tax would effectively raise the tax burden to 22% on gross turnover for non-residents in the digital market, excluding operating costs.
“Implementing the 6% Significant Economic Presence Tax would result in an effective rate of 22% on gross turnover for non-residents, not accounting for operating costs,” Abasy remarked during public participation before the National Assembly Committee on Finance and Planning in June.
