CS Mbadi Rolls Out Digital Marketplace Tax Reform Plan

Kenya's digital marketplace is poised for significant transformation as the Ministry of Treasury and Economic Planning introduces comprehensive tax reforms.

Treasury Cabinet Secretary John Mbadi has unveiled the Tax Laws (Amendment) Bill, 2024, marking a strategic shift in the government's approach to digital economy taxation. The cornerstone of these reforms is an expanded definition of the digital marketplace, now encompassing ride-hailing platforms, food delivery services, freelance work, and professional services. The move comes as the Treasury grapples with a revenue shortfall of Sh34.3 billion, highlighted in recent disbursement reviews.

The ride-hailing sector, in particular, demonstrates the significance of these reforms. With a 46% adoption rate ranking third in Africa, services like Bolt, Uber, and Safeboda have become integral to Kenya's transportation infrastructure. Similarly, the food delivery market shows remarkable growth potential, with projections indicating an expansion from USD 436.20 million in 2024 to USD 634.10 million by 2029. Major players such as Glovo, Jumia Foods, and Uber Eats have established strong footholds in this burgeoning market.

The reforms also address the growing freelance economy, where many Kenyan professionals are finding alternative income streams. The government aims to ensure equitable taxation across all forms of digital commerce by incorporating freelance services into the definition of a digital marketplace. A notable development is the replacement of the Digital Service Tax with the Significant Economic Presence Tax.

This new mechanism targets non-resident businesses operating within Kenya's digital marketplace, aligning the country's tax framework with international standards. The reform package includes additional legislative proposals through the Tax Procedures (Amendment) Bill 2024 and two Public Finance (Amendment) Bills, creating a comprehensive approach to digital economy taxation.