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Rope in digital players into tax net, State told

Treasury Cabinet Secretary Henry Rotich Cabinet reads the 2016/17 budget in Parliament. (Photo: Boniface Okendo/Standard)

The National Treasury needs to figure out a way to tax players in the digital economy to increase the number of taxpayers.

Business advisory firm PKF said Thursday the growing digital economy offers an opportunity for the Kenya Revenue Authority (KRA) to increase the number of corporates and citizens paying taxes and in turn help the tax collection agency over the next financial year.

The number of firms that are offering services online including through cell phones and the Internet are on the rise and their operations are largely not captured in taxation laws.

“Tax authorities have been talking about widening the tax bracket. I think there is need to look at the digital economy. There is no single provision in the income tax act that consider the likes of Uber. How is Facebook taxed for the adverts that we see on its platform?” posed Mike Mburugu, a PKF East Africa partner.

“There are so many opportunities that are not captured in the Income Tax Act. These are some of the changes that we want to see and which can help widen the tax bracket.”

Treasury is reviewing the Income Tax Act so as to enhance tax compliance and improve revenue collection.

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Deemed punitive

Mr Mburugu, who spoke at a pre-budget briefing Thursday, added that the Government should focus on increasing indirect taxes and reducing direct taxes in the 2017/18 budget.

National Treasury Cabinet Secretary Henry Rotich Cabinet is expected to deliver the budget statement on March 30 in Parliament, two months earlier than the traditional budget month of June.

“Indirect taxes are primarily driven by consumption of products which will always have a high demand among the entire population regardless of wealth and status,” said Mr Mburugu.

Despite the opportunity to increase tax collections through taxing players in the digital economy, it also presents unique challenges, including the threat of slowing down innovation, especially where tax measures might be deemed punitive. Deloitte East Africa Tax Leader Nikhil Hira said the digital economy offered an opportunity to grow the taxpayer base in the long-term. He added that giving amnesties to players resulted in an increase in compliance.

“A lot of taxation that we are not getting is from the informal sector. There have been arguments that the informal sector does not meet the threshold, but there are a lot of parts where people are making a lot of money and probably not declaring it,” said Mr Hira.

“We should consider amnesty for such players. After declaring amnesty for landlords, KRA has confirmed that more people have come into the tax net after they declared amnesty. There should be such considerations for Kenyan businesses.”

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