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Former ICT Minister warns against taxing digital platforms in Kenya

NAIROBI, Kenya, May 6 – Former ICT Minister Bitange Ndemo has asked the government to review its plans to tax digital platforms as part of its efforts to fund the Sh3trillion 2020/2021 budget.

The former Minister, who now serves as a professor of entrepreneurship, has warned that such a move would be counter-productive to plans to expand the country’s tax-paying base.

The plans to tax such digital platforms such as WhatsApp and Facebook have been mooted by the Finance Cabinet Secretary Ukur Yatani as part of increased efforts to meet and fund a budget that’s currently faced with more challenges than before.

The challenges include infrastructure projects under Agenda Four and reviving an economy that has been bashed by effects of the Covid-19 pandemic. However, Ndemo warned that such an idea will affect SMEs that have traditionally used the digital platforms to sale/ market their services.

“Taxing digital companies that are not domiciled in Kenya is impossible,” he said, adding, “They have brought more benefits to the Kenyan economy than we thought.”

Ndemo was speaking in Nairobi during a Pre-budget webinar organized by audit firm Ernst and Young [EY] for clients and media to offer positive critique of the government proposals in its 2020/2021 budget.

Ndemo told the meeting that in the past, India and France had tried using the same route to raise taxes but failed miserably.

“This taxation measure is not easy to implement. IT should be approached from a bilateral level using the African Union [AU] as a spring-board. It needs to the thought through by looking at the benefits Kenya has gained as compared to the money treasury is seeking out,” Ndemo said.

“These digital platforms have brought more benefits than we can compare and any plan to tax them will destabilize Kenyan SMEs that depend on them to do business” If pushed through, Dr. Ndemo said that he expects these taxes to drive Kenyan manufacturers away from local industry and lead to more job losses. “They would rather walk away than put up with such punitive taxes.”

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A tax partner at EY, Francis Kamau warned the meeting that the plan to introduce a 1.5 percent tax through withholding tax for the digital platforms need to review because it will hit industry hard.

“The fear among industry and SMEs is that this will amount to double-taxation,” he said, adding that “the government should have delayed the proposed tax to allow more consultations. He pointed out that plans to tax contributions to the National Social Security Fund [NSSF] was yet another step in the wrong direction and must be reviewed. The proposal to tax contributions is wrong and will dilute the value of pensions. It should be reviewed.”

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