Kenyans are opposed to the proposed Finance Bill 2023, which aims to take more money from their already thin pockets. The proposal also wants to receive revenues from content creators and could kill the launch of an intended $40 smartphone.
Kenya’s Finance Bill 2023 proposal has received negative coverage over the last couple of days and for good reason. It proposes ways to increase the tax base, targeting previously untaxed areas that have since boomed, such as online content creation. The proposed tax policy wants content creators such as bloggers, YouTubers, and social media influencers to pay taxes based on their revenues. The proposed regulations mandate content creators to register with tax authorities and fulfil their tax obligations. While the government’s rationale is to profit off a growing digital economy, content creators are worried that new taxes amount to multiple taxation.
In 2020, Kenya introduced two taxes for the digital economy: Digital Service Tax and Value Added Tax on Digital Marketplace Supply. Resident and non-resident entities providing digital services in Kenya pay Digital Service Tax (DST) at a rate of 3.0% of the total transaction value. Non-resident digital marketplaces also pay Value Added Tax (VAT) of 16% on taxable services provided to Kenyan residents. DST and VAT on Digital Marketplace Supply (VAT-DMPS) are paid by the 20th day of each month.
The recently proposed amendment for the Financial Bill 2023 introduces two additional digital taxes. First, a 3% tax will be imposed on transferring crypto and NFTs. Also, a 15% tax will be levied on digital content monetisation, which includes payments made to content creators for promoting and advertising products and services online, such as sponsorships, affiliate marketing, merchandise sales, and paid subscriptions. These taxes are different from DST and 16% tax on digital services. If approved by Parliament, the taxes will be effective from July 1.
“While everyone thinks I’ll wake up on July 1st a happy man, I’m worried about the people I have to pay every month. I have no idea how I’m matching Ruto’s terms. I’ll either review contracts to change terms of operation or terminate them,” says one of Kenya’s leading online content creators. “Now I understand why entrepreneurs elsewhere take jobs outside their home countries. I can’t allow myself to suffer willingly because of the government,” adds the creator.
The bill makes a $40 smartphone an impossibility
Under the proposed amendments, taxes will also be levied on imported raw materials used to assemble devices like smartphones. This new tax is linked to Kenya looking to assemble smartphones locally starting in July, which should cost $40. However, partners involved in the project warned the government that the $40 cost would not be achieved thanks to additional taxes proposed in the bill.
Recently, telco Safaricom asked the parliament’s finance and planning committee to revise the proposed tax rates in the Finance Bill 2023 to achieve the goal of $40 smartphones. During public hearings, Safaricom’s head of venture, Karanja Gichiri, emphasised the need to address import, excise, and VAT concerns to align with the president’s vision of affordable phones. Gichiri proposed reducing taxes to KES 3,000 ($27), resulting in a final price range of KES 6,500 ($47) to KES 7,000 ($51) for locally assembled smartphones.
Audit firm PwC representative Job Kabochi also suggested amendments to the VAT Act and Excise Duty Act to incorporate locally assembled and manufactured phones.
The bill further introduces a proposal to fund Kenya’s affordable housing initiative through a 3% monthly contribution from employees’ basic salary towards the National Housing Development Fund (NHDF). According to the bill, the employer will contribute 3.0% while the employee will be responsible for another 3.0% of the contribution. This has been a controversy that continues to be debated as many people do not want to take part in it.
For instance, matching housing fund contributions for 10 employees is equivalent to employing one minimum wage worker, which is unreasonable. With a struggling economy and rising costs, businesses may have to let go of an employee to meet statutory obligations.
Employers will share the burden of mandatory deductions with NHDF. This will reduce employee pay and require employers to match contributions. As a result, companies may face higher costs, leading to possible hiring freezes and job cuts. Employees may also seek pay raises to offset the increased deductions.
Increased taxes and prices are already affecting consumers and businesses, making higher prices undesirable. The impending 16% VAT on petroleum products will further raise petrol prices, which affect the cost of other goods and services.
It is understandable why Kenyans do not want to be associated with the proposal and why it could adversely affect both workers and employers if the bill is enacted. Online protests, particularly on Twitter, can be observed through the trending hashtag #RejectFinanceBill2023.
TechCabal is following the bill’s progress and whether it will be signed by President Ruto or rejected in the coming weeks.
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