Kenya is considering tax relief measures to attract reluctant investors from the West. This week, Nairobi rolled out the red carpet for American investors even as the US government complained that corruption and lack of a transparent tax policy were discouraging interest in Kenya.
These issues emerged at the summit of the American Chamber of Commerce (AmCham) in Nairobi, where President William Ruto was among key speakers.
“My government is finalising new tax policy guidelines that have gone through various stakeholder consultations, including inputs from AmCham. This policy that will enhance transparency in our tax regime will take effect by June and will be in place for a minimum of three years,” President Ruto said.
Digital services levy
He also revealed a plan by the government to scrap a 1.5 percent levy on digital services for the contentious global framework proposed by the Organisation for Economic Cooperation and Development (OECD) on taxing multinationals that includes a minimum rate of 15 percent.
While Kenya had been opposed to the framework proposing a 15 percent minimum tax rate on global firms, President Ruto has expressed a change in tone, which will see Kenya sign up to OECD pact ahead of its implementation on January 1, 2024.
“The growth of digital commerce has forced many countries to impose Digital Services Tax measures on income derived in their jurisdictions. Kenya has also done the same. Following discussions with players in this sector, we have committed to review this tax regime and align it with the two-pillar solution currently being developed by the OECD inclusive framework,” he said.
Reform taxation rules
The new two-pillar plan aims to reform international taxation rules and ensure that multinational enterprises pay a fair share of tax wherever they operate.
Under the former administration of President Uhuru Kenyatta, Kenya withheld its backing for the global minimum tax rate, which would have seen the government pause collection of the digital services tax, currently charged at 1.5 percent of sales made, from tech giants such as Google, Facebook and Amazon.
“Members who join the statement are obliged to withdraw their unilateral measures imposed on non-resident companies which do not have a physical presence in the market jurisdiction,” said the then Kenya Revenue Authority commissioner for Intelligence and Strategic Operations, Terra Saidimu.
Nairobi’s rejection of the OECD minimum tax framework had been a hurdle to negotiations on the free trade between Kenya and the US.
Disjointed tax regime
Speaking at the summit, US ambassador Meg Whitman raised concerns over a disjointed tax regime that was not conducive to American investment. She identified different tax regimes under various agencies as an impediment to doing business.
“Kenya must have a consistent, transparent and fairly administered national tax policy to attract and retain foreign direct investment and accelerate economic development,” she said.
She also took issue with corruption, which has been a persistent threat to a transparent business environment.
“Without a doubt corruption is also a critical issue and one that must be addressed for Kenya to reach its full potential in all areas of development,” said Whitman.
Kenya’s commitment
In response, President Ruto steered clear of the corruption bit, choosing instead to focus on the uncoordinated and disjointed tax regime that has seen the cost of doing business rise.
“Kenya is interested in and committed to promoting the best operating environment for business enterprises, and that our policy and institutional framework is designed to make Kenya the most competitive investment destination,” he said.
Comments