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With the global rise of giants such as Amazon, Facebook and Netflix, imports of digital services have increased considerably in Africa in recent years. A global tax agreement to this effect is expected to be implemented in January with the agreement of some countries.
The Kenyan government wants to adopt the global framework for taxing multinationals advocated by the Organisation for Economic Co-operation and Development (OECD). President William Ruto (pictured, center) announced this to investors on Thursday, March 30 at the U.S. Chamber of Commerce’s Regional Business Summit.
« Following discussions with stakeholders in this sector, we are committed to reviewing this tax regime and aligning it with the two-pillar solution currently being developed by the OECD’s Inclusive Framework. This framework will guide the taxation of digital trade transactions,” said the President of the Republic.
In 2021, the OECD finalised the reform of the international tax system to address base erosion and profit shifting by multinationals. The framework is based on two pillars, the first of which is to align taxing rights more closely with local market engagement. To date, 138 member jurisdictions have accepted it.
Under the previous administration of President Uhuru Kenyatta, Kenya suspended its support for the global minimum tax rate, which would have seen the government suspend the collection of the digital services tax from tech giants such as Google, Facebook and Amazon.
The country then expressed unease about the clauses of the agreement that would have seen the end of the digital services tax that is currently charged at the rate of 1.5% of sales made by foreigners in the country. After several negotiations, Kenya finally decided to align and sign the pact before its implementation on January 1, 2024.
According to OECD estimates, if it joins, the Kenyan tax administration could collect between 3.3 billion shillings ($25 million) and 5.3 billion shillings in taxes, more than 10 times the 400 to 500 million shillings that the tax authorities currently collect each year under the digital services tax.
It should be recalled that apart from Kenya, three other countries, namely Nigeria, Pakistan and Sri Lanka, have not yet acceded to the Declaration.
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