Tax regime choking BPO sector, say firms

Business process outsourcing companies are petitioning the Kenyan government to come up with a friendly tax structure that will make them competitive in the region. The firms say the country’s tax regime is so hostile to the sector that it has created a breeding ground for foreign outsourcing companies to thrive.

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As a result, they risk losing the expanding outsourcing market to international firms that enjoy an assortment of tax incentives extended to them by their countries. The sector has already sent a taxation structure proposal to the government, asking it to come up with a relatively conducive tax system that will create a level playing field with its international counterparts.

The appeal comes a few months after a study funded by the Canadian International Development Research Council showed that Kenya is yet to catch up with popular BPO destinations such as Mauritius, South Africa, Ghana and India.

The study noted that South Africa, one of the leading BPO destinations in the world, does not have tax incentives but has comprehensive investment, training and funding, while Mauritius had abolished taxes except for a 15 per cent corporate tax.

On the other hand, China offers subsidised world class infrastructure, tax incentives for purchases, zero corporate tax status and a 30 per cent personal income tax rebate to employees working in units in the special parks set up by the government.

Ken-Tech Data Limited Director Munjal Shah says that Kenya should formulate a tax scheme that will expose BPOs to a corporate tax relief of up to five years holiday and a labour tax relief holiday to encourage youth to join BPOs and make it their career succession plan.

Also to be factored in the radical tax shift is the pay-as –you-earn relief, BPO training subsidies as well as the formation of a data security Act. “There is a danger that Kenyan BPOs may opt to relocate to tax-friendly countries such as Philippines, unless the government takes drastic steps to address its outsourcing environment. This in turn could reflect in loss of jobs,” Mr Shah said.

Despite the upheavals, he says, the country is still on the right track to ensuring the sector grows in tandem with technological changes, especially with the coming of faster internet connections. Just before the landing of the fibre-optic cable, the Kenya ICT Board introduced a bandwidth subsidy to the sector operators, which players say has had a major impact on their growth.

In a clear signal that Kenya is willing to make the outsourcing sector thrive, the government in partnership with one of the world’s leading researchers carried out a survey, the findings of which are yet to be implemented. Experts, however, say the findings, among others, will recognise the outsourcing industry as a stand-alone from the tax perspective.

The Ken-Tech boss told Daily Nation that East Africa has no alternative but to promote the sector, because it has a potential of creating huge employment opportunities in the country.

Level-playing field

“Not very many industries have the potential to create direct and indirect jobs for the masses as the BPO industry. There is need to ensure a level-playing field for the players in this infant industry vis-a-vis its global competitors,” Mr Shah said. He added that corporates should now consider shifting their non-core businesses to outsourcing to cut on costs, especially at this time of the economic financial crisis.

Today, Ken-Tech is one of the leading BPOs in the country, offering call centre services, data processing services, transaction processing services as well as digitalisation services. To exploit the recent merger of economies in East Africa, Mr Shah says they will be carrying out market studies to penetrate the region’s markets in the long run.