This revolution, popularly referred to as the Internet of Things (IOT), has and will continue to change how we live and conduct business. There is no sector of the economy that will remain undisrupted in the next few years.
Some of its early impacts have been seen in the fact that Amazon is now the world’s biggest retailer, Uber has become the largest taxi company, Airbnb has become the largest accommodation provider, Instagram is the most valuable photo company, FinTech companies are disrupting the banking industry and the list goes on.
Essentially, these are companies using technology platforms to disrupt the old way of doing business. All these companies do business in Kenya — that is, they have customers in Kenya. So how do you tax the income that these businesses derive from Kenya?
Tax authorities are not ready to tax digital economies
We have all witnessed the struggles of the Kenya Revenue Authority (KRA) in its endeavours to tax landlords and property owners. These are taxpayers who own physical property that can be spotted from space.
You can only imagine their struggles in taxing a technology company that does not even have legal presence in Kenya, let alone a physical one.
In a past conference in Nigeria, I posed a question to the tax authority on how they plan to tax digital/tech companies. The panellist was honest enough to say that they want to first concentrate on what they can see with their eyes then they try the digital economy.
I do not think the panellist had an idea how big the digital economy would be in a few years later.
He did not imagine that in two years the taxi business would be controlled by a tech company that he cannot see. He wanted to focus on the yellow cab persons who are now being run out of business by the taxi-hailing app companies.
He also did not expect the service sector’s contribution to the gross domestic product (GDP) of Nigeria to jump from 29 per cent (2013) to about 56 per cent (2015).
Similarly, the contribution of the information, communication and technology (ICT) to GDP has increased from six per cent in 2012 to about 12 per cent in 2016, which translates to about $57 billion (Sh5.8 trillion).
The significance of the digital economy’s contribution to Kenya’s economy
The service sector’s contribution to Kenya’s GDP in 2015 was about 50 per cent. The value of output of the ICT sector is expected to grow to Sh100 billion this year. This is expected to be one of the biggest drivers of the country’s economic growth in the coming years.
Therefore, it should be expected that there are adequate changes in the laws, including tax laws to support this sector.