Kenya Risks Trade War with the US over Plan to Tax Tech Companies

The government’s plan to slap digital companies with taxes could spark a trade war between Kenya and the US.

Through the Value Added Tax (Digital Marketplace Supply) Regulations, 2020, companies will be required to pay 1.15 percent of gross sales values as tax.

Under the regulations, the digital market place is defined as any business making direct transactions with Kenyan consumers irrespective of their country of residence.

“The regulations relate to any supply of a service made over a platform that enables the direct interaction between buyers and sellers of services through electronic means,” the regulations state.

This means the sale of electronic event tickets, software programs, web hosting services, and downloadable digital content are targeted in the VAT net.

If the regulations are adopted, digital companies will be required to submit a record of all the supplies made in Kenya indicating the value of supplies and VAT deducted. 

Failure to file within the recommended period—the 20th day of the month following the end of the tax period—will attract penalties including a ban to the access of the local digital market place.

The US government, through the Department of Trade, is already probing several countries that are planning or have introduced taxes on American tech giants. They include Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom.

France’s decision to legislate a digital services tax sparked divisions with the US with the former forced to shelve the move after President Trump administration threatened to charge more on French exports.

Trump also threatened to impose unspecified sanctions against France over its plans to tax US digital giants.