Digital tax: Google warns on risk of trade wars

Technology giant Google has warned Kenya risks sparking a trade war with other countries with the proposed taxation of online businesses.

Through a proposal in the Finance Bill, 2019, Treasury wants to impose income tax on online businesses in the country.

But Google East Africa Public Policy and Government Relations Lead Michael Murungi said yesterday the proposal defies international tax policies whereby such companies pay the bulk of their corporate taxes in the countries where the product and services are created rather than consumed.

He said such a move would as a result put Kenya at loggerheads with other jurisdictions, potentially sparking a trade war.

"They’ll be chipping away from the international consensus-based system on how taxation could proceed and this could escalate in terms of trade wars not to mention the impact that this would have on the services that Google and other companies are providing in Kenya,” added Mr Murungi.

He spoke in Nairobi when he presented the firm’s memorandum on the Finance Bill, 2019 to the National Assembly’s Departmental Committee on Finance and National Planning.

"If we pass this law as it is proposed, it will mean that we will be asked to pay a rate of tax that is equivalent to the current income tax rate which is at 33 per cent. If every country does that, we are going to have a run to the bottom,” said Murungi.

Technology rights defenders also made their presentation to the House committee, criticising the proposed tax.

Executive Director Content Development and Intellectual Property Trust Alex Gakuru said that the tax would criminalise the use of the Internet and erode gains made in the country.

"There is no universal consensus on what is a digital marketplace. Now here we are passing an Act creating VAT and also income tax on a digital marketplace,” said Gakuru. Fintech Institute Chairman Stephen Nduati called for more research before such taxation.