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Kenya among suitable countries to start an online business: report

By James Wanzala | January 14th 2021

Kenya has been ranked in position 77 out of the 99 best countries to start an online business according to BestAccountingSoftware.com.

The rankings come even as e-commerce continues to grow year-on-year, with eMarketer forecasting global sales worth $6.542 trillion by 2023, accounting for 22 per cent of all retail sales (up from 14.1 per cent in 2019).

This means 2021 could be the year to start your online business.

To find out, the firm's researchers looked at 20 different categories across 99 countries.

From Gross National Income (GNI) per capita and corporate tax rates to the number of social media, internet users, and co-worker spaces by each individual country, they analysed a plethora of key areas.

The survey comes at a time when Kenya will start taxing online businesses once the Value Added Tax (Digital Marketplace supply) Regulations, 2020 is operational.

The National Treasury CS Ukur Yattani recently published the regulations which will help the Kenya Revenue Authority (KRA) go after online businesses.

The taxation targets both domestic and international market places doing business with individuals or entities in Kenya.

Services chargeable under the digital service tax include downloadable digital content such as mobile apps, e-books, and films, over the top services which include streaming, television shows, films, music, podcast, and any other digital content.

Others are the sale, licensing or any other form of monetizing data collected about Kenyan users, provision of digital marketplace, subscription-based media such as news, magazines, and journals, electronic booking, provision of search engine and online distance training through pre-recorded media.

The regulations follow the amendments to the VAT Act, 2013 by the Finance Act, 2019, clarifying that VAT is applicable to supplies made through a digital marketplace.

The study found out that the majority of countries most suited to starting an online business are located in Europe.
They are joined by the US, Canada, and Singapore, which provide an all-around great starting point for the next business venture – but, the “perks” of these locations tend to be met with a higher corporate tax rate.

The online business scoring criteria were based on internet coverage and penetration, country wealth and ease of processes, access to delivery services and skilled workers, and finally access to delivery services and skilled workers.

Each category was scored out of 100 (100 for the top-scoring country, 0 for the worst) and an average score created from all of the 20 categories.

Kenya scored 34.42 totals cores with 22.47 per cent in Global Internet Speedtest Index Mobile (mbps), global internet speedtest index fixed broadband (mbps) at (17.66 per cent), fixed broadband subscriptions (per 100 people) at (0.93), social media users (percentage of population) at (17),  Secure Internet Servers (per 1 million people) at (248), corporate tax rate (30), GNI per capita (2019 current USD) at (1,750).

Other scores were the share of individuals with a finance account (15+, 2017 or latest) at (81.57 per cent), internet users percentage of the population at (43), percentage of the population who use the internet for online purchases and/or paying bills (26), number of countries with the same time zone(18), Logistics Performance Index(LPI)(2.81), postal development report (2019) (34.14), number of co-work spaces (46), digital skills among the population(4.55), payment processing providers(3), economic freedom(55.3), number of procedures to register a start-up business(7), days required to start a business(23) and cost of business start-up procedures (% of GNI) at 22.4 per cent.

“With very low scores across our internet connectivity and penetration categories, Kenya features in the bottom half of the rankings with a below-average score. However, with only 7 procedures, 23 days, and 22.4 per cent of GNI required to start up a business in Kenya, it does score well for its ease of processes," said Rebecca Moody, Head of Research at BestAccountingSoftware.com.

She added: "Kenya also receives a reasonable score for the digital skills it has among its population and the share of individuals who have a finance account (81.57 per cent). Therefore, those looking to set up an online business in Kenya will be able to do so with relative ease but should be mindful of the limitations when it comes to internet speeds, security, and audience base."

The top 10 countries were Denmark, which enjoys a top score for secure internet servers (over 277,000 per 1 million people) and share of individuals with a finance account (99.92 per cent).

And based on the percentage of GNI it costs to start a business, Denmark is the cheapest of our top 10 (0.2 per cent). It also ranked second highest for how much of the population use the internet for online purchases/paying bills (88 per cent) and is positioned near the top for the total number of internet users (98 per cent).

Denmark did, however, have the second-lowest postal efficiency score in our top ten, has a very low number of co-work spaces (32), and received mid-range scores for mobile internet speeds (66.68 Mbps), social media user penetration (71 per cent), and corporate tax rates (22per cent).

Next was Switzerland, Netherlands, United States, Norway, Sweden, Singapore, Germany, Canada, and Luxembourg.

The worst 10 countries were Haiti(102), Venezuela(101), Uganda(100), Angola(99), Zambia(98), Pakistan(97), Cambodia(96), Nepal(95), Bangladesh(94) and Tajikistan(93).
The research covered over 200 countries worldwide, before finally featuring a comprehensive analysis of 99 (all of the countries where full data was available).

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