Where’s the big money from online investments?

 The Fourth Industrial Revolution is gradually creeping into Kenya and online business transactions have been on the rise. More than ever before, many people run online businesses and use digital platforms for all their payments, but there is a gaping loophole in tax collection.

 While I acknowledge that online businesses will help boost the economy, the strength of the economy cannot be known if these businesses are exempted from tax obligations, as most of them believe in  self regulation.

Equity in taxation is meant to achieve dual objectives of attaining social justice and a means of enhancing the equal distribution of wealth in an economy.

With the rising levels of internet penetration, there has been a soaring appetite for online sales and purchases. Consumer retail customer base for e-commerce companies has also snowballed.

Billions have been transacted via e-commerce platforms. The Communications Authority of Kenya (CA) estimates the industry to be worth a mouthwatering Sh4.3 billion.  

The total number of Bitcoin transactions in Kenya are estimated to be worth over Sh150 billion, according to the Blockchain Association of Kenya. All these go untaxed, and the sector now taps on the marketing potential of Facebook, Twitter, Instagram and WhatsApp.

Though digital disruption has created jobs for thousands of online article writers in Kenya, none of them remits taxes to the government. They use online payment platforms which the government should collaborate with to enable tax compliance.

Though I don’t aim to discourage online entrepreneurship and innovation, online businesses do not have physical addresses or legal structures in the jurisdictions they operate, making it easy to escape the taxman’s noose. Tax evasion slows down economic growth.

Kenya like other countries such as South Africa, India, Philippines, Israel, Japan, Thailand and France, must begin to address the taxation challenges with regard to digital transactions.

Section 3 of the Income Tax Act imposes income tax upon all the income of a person, whether resident or non-resident, which is accrued in or was derived from Kenya.

Equally, Section 5 and 8 of the VAT Act, 2013 imposes Value Added Tax on supply of imported taxable services including electronic services delivered to a person in Kenya at the time of supply.

In addition, the Finance Bill, 2019 has proposed an amendment to tax incomes or supplies on a digital marketplace.

The proposed amendment ensures that income earned or transactions taking place on digital platforms will be taxed in accordance with the law and after taking into account the values generated locally.

In the year 2070, almost every business will be conducted online. Imagine an interconnected world where 5G network, Internet of Things, Blockchain, Big Data and digital currencies will be the norm.

Every transaction will be done online, and it is only relevant that the Kenya Revenue Authority (KRA) starts preparing Kenyans for the future of taxation so they get used to it early enough.

KRA, the ICT ministry and the National Treasury must work together to ensure that resources are mobilized locally to ensure proper registration of online investments.

The writer is the online editor, Taifa Leo and technology journalist for the Daily Nation and Business Daily; @faustination; [email protected]