CS Mbadi Proposes 6% Freelance Services Tax.
KENYA : The National Treasury, through the 2024 Tax Procedures (Amendment) Bill, aims to increase revenue by broadening the tax base to include ride-hailing, food delivery, and freelance services which is currently 1.5% to 6%.
The Cabinet Secretary John Mbadi led Kenyan Treasury, is proposing a new 6% tax on foreign-owned digital service providers like Uber, Bolt, Glovo and Jumia operating within the country by replacing the existing Digital Service Tax with "Significant Economic Presence Tax".
While local companies are exempt as they already pay corporate income tax, this new tax is likely to increase costs for consumers and impact revenue/profitability for the companies.
Additionally, Kenya's National Treasury has announced plans to reinstate a five percent withholding tax on interest earned from infrastructure bonds (IFBs) with maturities of at least three years, marking the first time since their launch in February 2009 that IFBs will be taxed.
This proposal, outlined in the Tax Laws (Amendment) Bill, 2024, awaits approval from Parliament and reverses the previously tax-free status that has made IFBs a popular investment vehicle for financing government infrastructure projects.
Currently, IFBs represent over 35 percent of net domestic debt, with significant holdings by commercial banks, nonbank investors, and a modest portion held by non-residents.
However, The Parliamentary Budget Office (PBO) has cautioned the Kenyan government against introducing new taxes and levies, stating that this approach will not necessarily lead to higher revenue collections.
Despite missing revenue targets by Sh205 billion in the previous fiscal year and Sh123.6 billion the year before, the government continues to propose new taxes as a means to increase revenue.
The PBO argues that there is a fundamental problem, noting that simply introducing new tax policies does not guarantee better compliance or higher revenue and further recommends that the government prioritize alternative approaches to revenue enhancement.
The PBO recommends focusing on improving tax administration through better enforcement of current policies, enhanced data analytics, and increased use of technology to simplify tax processes and improve compliance.
The think tank also suggests fully integrating the KRA system with counties and other national government entities to seal revenue leakages and enable efficient collection of taxes like Pay-As-You-Earn (PAYE).
The body, reminds the Govt that the key to increasing tax collections lies in creating an efficient and transparent tax system, rather than relying on the introduction of new taxes whenever the government requires additional revenue.