US tech giants, including Microsoft, Netflix, and IBM, want Kenya to axe its digital marketplace tax, flagging it as a trade barrier even as the country seeks a new trade deal with Washington. The digital services tax, which was recently renamed as the Significant Economic Presence (SEP) tax, has continued to raise concerns on fairness and formed part of the reasons that saw America slap Kenya with a 10 percent tariff in April this year. Amcham Kenya, the business chamber for American and Kenyan businesses that facilitates two-way trade between the countries, says that the tax has been biased against US firms. Kenya introduced the three percent SEP tax last December through the Tax Laws (Amendment) Act, 2024, and is charged on the turnover generated from digital products sold in the country by non-resident companies. It replaced the Digital Services Tax (DST) that was levied at 1.5 percent on all digital products and services regardless of the seller’s physical presence in the country.The SEP tax is payable by non-residents who earn income in Kenya through the digital marketplace without having a physical presence and is charged at the rate of 30 percent of the deemed taxable profit (10 percent of the gross turnover). This includes businesses such as Netflix, whose video-on-demand services are available to Kenyans, or Amazon, whose services are also provided in the country, even as the firms have bases overseas. “The SEPT disproportionately affects US and regional digital companies, creating potential trade friction, risks of double taxation, and challenges in reconciling with Kenya’s tax treaty obligations,” Amcham said in proposed supplementary amendments to local business laws. “We recommend scrapping the SEPT entirely to align with global norms, remove trade irritants, and encourage digital investment.” A non-resident person is considered to have significant economic presence where the user of the service is in Kenya.Persons offering the services through a permanent establishment are, however, exempted from the tax alongside businesses transmitting messages via cable or satellite broadcasting and non-residents with an annual turnover of less than Sh5 million. Analysts have previously deemed SEPT as a larger tax burden when contrasted to the digital services tax. “The three percent effective tax rate (being 10 percent of the gross turnover multiplied by 30 percent of the deemed profit) would increase the tax burden on income generated through digital marketplaces, from 1.5 percent of gross turnover under the DST regime,” noted analysts at KPMG. The clamour to waive taxes for services on the digital marketplace comes as Kenya pushes for a new trade deal with the US ahead of the expiry of the Africa Growth Opportunity Act (Agoa) at the end of this month. The renewed push is also in the backdrop of the 10 percent tariff on Kenya’s exports to the US, which took effect on August 1. The 10 percent tariff has been the benchmark charge by the US on countries for applying reciprocal measures.The United States Trade Representative (USTR) cited Kenya’s application of the significant economic presence tax as a trade barrier during its recommendation that President Trump include the country on the tariff list.“On December 27, 2024, Kenya replaced its digital services tax with a “significant economic presence tax” under the Tax Laws (Amendment) Act of 2024. A three percent effective tax on gross revenues is imposed on non-residents whose revenue from the provision of services is derived from or accrues in Kenya through a digital marketplace,” the USTR said in a report.Trade Cabinet Secretary Lee Kinyajui said last month that he had emphasised Kenya’s strong commitment to securing a mutually beneficial trade agreement during a meeting with the US Trade Representative Jamieson Greer.The enforcement of the tariffs was first paused for 90 days from April 10, which lapsed in July before being extended to August 1. (ICE NAIROBI)

Fonte notizia: Business Daily