In the budget statement by Cabinet Secretary Prof. Njuguna Ndung’u, the digital and ICT sector in Kenya has been hit with new tax proposals. A quick look at the proposal shows that cost of calls, internet subscription, money transfer and digital advertising is set to rise. We look at the proposed taxes the CS highlighted in his speech to parliament.
After reducing the mobile termination rates, the promise of cheaper phone calls to Kenyans is short lived. This is because excise duty charged for phone calls, internet data, and most money transfers will increase from 15% to 20% if current proposal is passed.
However, on mobile money transfer, there is an exception for excise duty on fees charged for mobile money transfers by cellular service providers e.g. Airtel Money and M-Pesa. For such services, the current rate of 15% is to be retained.
New Income Tax on Telecommunications Spectrum Licenses
Kenyan telcos face another big blow as the spectrum license fees paid by telecommunication operators is currently not tax-deductible. Under proposed measures, a new income tax on telecommunications spectrum licenses has been introduced. The tax is set to be deductible over a period of 10 years. If the proposal is passed, the telcos can spread out the tax burden associated with the license cost over a decade.
Spectrum licenses are given to telecommunications companies allowing them to use specific radio frequencies to provide services like mobile phone coverage and internet access. The proposal even though spread out brings a new expense that may ultimately be passed on to consumers. In addition to the excise duty proposal, the cost of communication for Kenyans looks set to rise further.
The government proposes to amend the Excise Duty Act. This amendment will enable Treasury to charge excise duty on services offered in the country through a digital platform by non-residents of Kenya . The CS claims the amendment will establish a level playing field, applying the same rate to both residents and non-residents offering excisable services.
Excise Duty Taxes to Discourage Behaviour
The betting, gaming, prize competition and lotteries sector continues to attract excise duty increase. Last year, Treasury raised excise duty on these activities from 7.5% to 12.5%. In the budget statement for the FY24/25, the proposed increase of excise duty rates will see a leap of 7.5% bringing the new rate to 20%.
Prof. Ndung’u claims that this measure is to further discourage participation in the digital gambling activities. However, he noted that in the past the measures have not had the desired effect, “Despite this increase, participation rate in these activities by Kenyan Citizens especially school going children and young adults continues to persist.”
Another excise duty proposed to discourage behaviour is the proposal to expand the scope of excise duty on fees charged on advertisement of alcoholic beverages, betting, gaming, lotteries and prize competition. Government wants this tax to include fees charged on internet and social media advertisement. Before, it only covered ads on traditional media. The taxes are contained in the Finance Bill 2024 covered comprehensively here.
