Treasury CS Mbadi Defends New Digital Tax Plan, Targets Multinational Firms

Mbadi New Taxes

Proposed Tax Reforms Target Multinationals, Not Kenyan Users: Treasury CS Mbadi Explains

NAIROBI, Kenya — Treasury and Economic Planning Cabinet Secretary John Mbadi has clarified the government’s intentions behind proposed taxes on digital and social media platforms, stating they are targeted at multinational firms rather than individual Kenyan users.

While addressing the National Assembly Finance Committee, Mbadi reassured the public that the new tax measures under the Tax Laws (Amendment) Bill 2024 aim to ensure foreign companies conducting business in Kenya contribute fairly to the country’s economy.

“Why would we just tax our Kenyans who are using these platforms while the owners of these platforms are not paying anything?” Mbadi queried, seeking to dispel misconceptions about the tax proposals.

Expanded Definition of Digital Marketplace

The amendment to Section 3 of the Income Tax Act broadens the definition of “digital marketplace” to include sectors such as:

• Ride-hailing services
• Food delivery services
• Freelance services
• Professional services

This revised definition is designed to capture income generated from businesses operating through digital or electronic platforms within Kenya.

Significant Economic Presence Tax (SEPT)

The Bill proposes replacing the current 1.5% Digital Presence Tax with a 6% Significant Economic Presence Tax (SEPT). Mbadi explained that SEPT focuses on multinational companies benefiting from Kenya’s infrastructure without adequately contributing to its maintenance and development.

“The internet connectivity that these platforms rely on is funded by Kenyan taxpayers. It’s only fair that part of their proceeds help maintain that infrastructure,” Mbadi emphasized.

Minimum Top-Up Tax (MTUT)

Alongside SEPT, Mbadi introduced the Minimum Top-Up Tax (MTUT), a measure to counteract tax base erosion by multinational enterprises.

• MTUT mandates a minimum effective tax rate of 15% for companies with an annual consolidated turnover exceeding Ksh100 billion.
• Firms paying below this threshold will be required to “top up” their contributions to meet the set rate.

Mbadi underscored the necessity of this reform, stating: “These multinational corporations with turnovers above Ksh100 billion must contribute their fair share. The 15% minimum tax ensures fairness and supports our infrastructure and public services.”

Public Concerns and Mbadi’s Reassurance

Amid public concern that the reforms might stifle Kenyans’ social media activities, Mbadi clarified that the focus remains on revenue generated by foreign corporations operating within the digital marketplace.

“This is not about raiding social media,” he asserted. “We are targeting foreign companies making profits here to ensure part of that stays in Kenya.”

Mbadi urged lawmakers and the public to support SEPT and MTUT as critical tools for ensuring multinational corporations contribute fairly to Kenya’s economy.

“These measures will not only generate much-needed revenue but also promote fairness and equity in our tax system,” he concluded.