World Bank faults tax on digital trade

The World Bank has poured cold water on Government’s efforts to collect taxes from small businesses selling and buying products online.

In a Press briefing yesterday, on the Kenya Economic Update that will be released today, a senior World Bank official said it was not only difficult to evaluate the value of economic activities online, but that it might also discourage the nascent digital economy.

Casey Turgusson, Senior Digital Development Specialist at the World Bank Group, said as much as getting taxes from digital business was critical in expanding the tax base, it would not be a walk in the park for the Kenya Revenue Authority (KRA).

Through the Finance Bill, 2019, Treasury wants the Income Tax Act amended by introducing a new provision that lists income accruing through a digital marketplace as taxable income.

However, Mr Turgusson asked how the Government was going to collect taxes from the digital marketplace when the mechanism was not there.

“When you have a start-up, the accounting system of looking at that business is quite different to a traditional business. Often times you are running loss for a number of years to gain market share before you could actually gain the profits which could be taxed,” he said.

He, however, said tax evasion on the online platform by small and medium enterprises was prevalent.

Parliament has rejected proposals to scrap the tax on digital businesses, arguing that “transactions carried over the digital platforms are not different from those carried out through ordinary business activities”.

The MPs said the law should not discriminate imposition of tax based on the form the transaction is carried out.

KRA says it will be collecting just a small withholding tax from digital platforms as a means to weaning them into tax compliance.

The World Bank report also delves into the ongoing debate on market concentration in the telecom sector, with Turgusson noting that there is less competition in Kenya’s mobile money sub-sector compared to other countries.

“Market concentration in both the telecom market and mobile money in Kenya is much higher than in some of the neighbouring countries,” said Turgusson.

He advised Kenyan regulators to be vigilant on the abuse of market power.