Why Digital Services Tax is a retrogressive policy


Amidst calls for social distancing and avoiding use of cash owing to curb the spread of Covid-19, the Government has moved to charge Kenyans for opting for safer online shopping; a most counter-productive policy.

Come January 2021, the Kenya Revenue Authority will start levying a digital services tax. This will apply to all online platforms where buyers and sellers interact. A 1.5 percent will apply on the gross value of the purchase. So, for instance, if you buy anything on Jumia, Amazon, or take a ride in a Littlecab, you will on top of your bill, pay an extra 1.5 percent tax.

Ever since the advent of Safaricom’s MPESA mobile payment system in 2009, and the explosion of internet services after the landing of undersea fiber optic cables linking us to other countries, Kenya has embraced online payment for goods and services.

This has been accelerated by the advent of the Covid-19 pandemic which saw partial shutdown of the country’s industries and restricted travel of Kenyans between counties. Global travel was also grounded and the country closed off its airspace to most passenger traffic.

As a result of the shutdowns and imposition of a curfew under the Public Health Act, online shopping soared. Online retailers like Jumia, Copia, and even Twiga saw business grow beyond what their existing infrastructure could handle.

Government also stepped in to facilitate this e-commerce. Banks and mobile money services were instructed to waive transactions charges for people transferring amounts less than Sh1000. Indeed, Safaricom, the nation’s largest company, recently announced its half-year results dipped on account of that policy.

Countless other operations have also sprung up and are thriving doing electronic commerce. From food delivery, to shopping, books, name it. Indeed, it could be said that business dynamics have changed and we are likely to see a lot more purely online businesses in Kenya. Brick and mortar operations are likely to be a thing of the past.

Which brings us to the baffling question, why would government step in to impose taxes on a nascent economic activity when it should be encouraging it?

To begin with, why would you charge someone for using an online platform to shop? It means if I go to the supermarket, I will pay less if I opt to pay cash instead of swiping my card or paying with MPESA. How does this make any sense? Isn’t it a direct counter-policy to the existing Covid-19 protocols and long-held policy of transforming Kenya eventually into a cashless society?

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