Kenya's tax reforms face backlash over uncertainty and investors concerns
By Maureen Kinyanjui |
The IEA warned that this tax increase could face resistance from foreign service providers, further discouraging digital investment in Kenya.
Kenya's frequent changes to tax laws are creating uncertainty for investors, leading to concerns from business leaders and industry bodies about the country's ability to attract long-term investment.
In submissions made before the National Assembly's Committee on Finance and National Planning on Tuesday, representatives from the Law Society of Kenya, the Institute of Certified Public Accountants of Kenya (ICPAK), and the Institute of Economic Affairs (IEA) called on the government to adopt a more stable and predictable tax regime.
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The institutions argued that regular amendments to the tax code are making it increasingly difficult for businesses to make sound investment decisions.
"A stable tax regime allows businesses to consciously make investment decisions without worrying about the uncertainty and costs associated with reviews of taxation laws," said one of the representatives during the meeting.
According to these bodies, Kenya's taxation system suffers from three major issues: unclear policy objectives, erratic changes to the tax code, and multiple taxation at both the national and county levels.
The proposed amendments under the Finance Bill 2024 have raised additional concerns. The IEA, for instance, criticised the introduction of the "economic presence tax," which would replace the current digital service tax.
This new tax, proposed at 3 per cent of gross turnover, would apply to non-resident digital service providers doing business in Kenya through digital platforms.
Currently, non-residents are taxed at a rate of 1.5 per cent.
The IEA warned that this tax increase could face resistance from foreign service providers, further discouraging digital investment in Kenya.
Meanwhile, law firm Bowman's raised concerns over a proposal that would deem income derived from digital platforms to be taxable in Kenya, even if the income was not directly tied to the country.
According to the firm, the proposal could lead to double taxation, as non-residents would be required to deduct withholding tax when making payments to Kenyan residents.
"This could impose an additional compliance burden on non-resident digital platform operators," Bowman's noted in their submission.
On a more positive note, the accountability group Okoa Uchumi, which represents various civil society organisations, commended the government's proposal to increase the value of tax-free meals provided to employees, a measure that has not been adjusted in nearly two decades.
The change seeks to raise the tax-free meal limit from Sh48,000 to Sh60,000, reflecting the rising cost of living and income levels.
Despite the mixed reactions to the proposed amendments, the overarching concern remains Kenya's lack of a consistent tax policy, which could have long-term implications for business and foreign investment.
The business community is urging the government to establish clear, stable tax policies that can support economic growth and investor confidence.
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