The proposed 15 percent tax on social media and internet services in Kenya has sparked widespread debate, with many users fearing the tax could be passed on to them in the form of higher data and internet bundle costs. However, Treasury Cabinet Secretary (CS) Mbadi has clarified that the tax is not aimed at Kenyan users but at the owners of social media platforms, most of whom are multinational tech giants based abroad.
In an appearance before Parliament, Mbadi defended the proposal, emphasizing that foreign companies benefiting from Kenya’s infrastructure must contribute to the country’s economy. The tax is part of the broader strategy outlined in the Tax Laws (Amendment) Bill, 2024, which targets non-resident digital service providers who derive income from Kenyan users. If passed, the new tax would apply to businesses conducting digital transactions with users in Kenya, ensuring that a portion of their profits remains in the country.
Aiming at Big Tech
Mbadi pointed out the inequity of the current system, where Kenyan users pay for social media access while the companies that operate these platforms contribute little to Kenya’s tax base. He stressed that the infrastructure enabling the operation of these platforms, such as internet connectivity, is funded by Kenyan taxpayers. “Why should we just tax our Kenyans who are using these platforms yet the owners are not paying anything?” he asked, reinforcing the government’s stance that if a business is profiting from Kenyan users, it should contribute to the local economy.
The CS clarified that the tax would apply to companies with a “significant economic presence” in Kenya, which includes those providing digital services through a business conducted over a digital marketplace. This would primarily target major global platforms like Facebook, Google, and Twitter, whose business models revolve around advertising and user data, all of which are accrued from Kenyan consumers. These companies, while operating in Kenya, currently pay very little in taxes compared to Kenyan businesses, which are subject to a 30 percent corporate tax rate. “These are multinational organizations with turnovers of over Sh100 billion a year, and yet they pay less than 15 percent as tax,” Mbadi noted.
Concerns Over Impact on Consumers
Despite the government’s assurances, there are concerns that the tax will eventually be passed down to local consumers. As the service providers adjust to the new tax, they may increase the cost of internet and data services, thereby indirectly taxing the users. This is particularly concerning given the widespread reliance on social media platforms for communication, business, and entertainment, especially among the youth.
The tax would apply to fees charged to users for accessing the internet or social media platforms. However, the government has proposed measures to alleviate the financial burden on consumers. The Bill also includes a provision to reduce the excise duty on telephone and data services from 15 percent to 12 percent, which would help offset any potential price hikes that could arise from the new tax.
The Broader Economic Argument
The introduction of this tax is not just a revenue-generation measure but a call for fairness in the digital economy. With global tech giants continuing to make huge profits in Kenya without contributing a fair share of taxes, the government is aiming to level the playing field for local businesses that are taxed at a higher rate. Mbadi’s argument is that these foreign firms benefit from Kenya’s growing digital infrastructure and should, therefore, pay taxes that contribute to its development.
“The issue is that these multinational corporations enjoy the services and infrastructure provided by our taxpayers,” he said. “It makes no sense that they benefit without contributing.”
Future of the Tax Proposal
The Tax Laws (Amendment) Bill, 2024, is currently under discussion in the National Assembly. If passed, it will introduce a significant economic presence tax, ensuring that foreign digital service providers pay taxes on their profits generated in Kenya. While the tax aims to address the inequality in the digital economy, it remains to be seen whether it will truly benefit Kenyan consumers or if they will bear the brunt of the costs. As the government navigates this complex issue, it will need to balance the need for revenue with ensuring that digital services remain affordable for all Kenyans.
