Digital ride-hailing platforms Bolt and Uber have warned that they would be forced to close down their operations in Kenya if Parliament approves proposals to impose a six percent tax on gross turnover for non-resident firms.
Bolt and Uber separately told the National Assembly’s Finance and Planning Committee that imposing the Significant Economic Presence Tax (SEP) will likely lead to collapse of the industry due to losses or low margins.
The National Treasury is seeking to impose the SEP, which shall be payable by a non-resident person whose income from the provision of services is derived from or accrues in Kenya through a business carried out over a digital marketplace.
The Bill seeks to remove the Digital Service Tax (DST), which is currently charged at the rate of 1.5 percent, and replace it with the SEP charged at the rate of six percent.
“By introducing the six percent Significant Economic Presence Tax (SEP), the effective tax rate for a non-resident in the digital market space will be 22 percent on gross turnover without taking into consideration the operating costs,” Bolt Public Policy Manager George Abasy said.
“SEP tax at six percent will likely lead to collapse of the industry due to losses or low margins. Non-resident companies currently pay VAT at a rate of 16 percent with no opportunity to deduct input VAT. They also pay 1.5 percent in Digital Service Tax (DST) giving an effective tax rate of 17.5 percent on gross turnover, not profit.”
Bolt Africa Tax Manager Celia Kuria told the committee that is chaired by Molo MP Kuria Kimani that SEP as a tax on gross turnover is comparable to Turnover Tax, which is currently charged at three percent.
“This shows a significant disparity and disproportionate disfavour to non-resident entities and similarly, foreign direct investment,” Ms Kuria said.
“Note that the ride hailing industry in Kenya is governed by National Transport Safety Authority (NTSA) which has capped ride hailing commissions to 18 percent thereby limiting the company’s ability to generate revenue.”
Ms Kuria said that, should the SEP tax be imposed, Bolt is going to be taxed at 22 percent on the topline in addition to a commission capped at 18 percent and VAT at 16 percent, which will see its earnings from a Sh500 ride drop from a profit of Sh1.40 to a net loss of Sh2.
She told the committee that, when a similar SEP tax was introduced in Nigeria, several multinational companies including Microsoft, GlaxoSmithKline, and Uniliver left the country.
Uber BV director Blair Radford asked the committee to reverse the Bill’s proposal to repeal the 1.5 percent DST and replace it at a higher rate of six percent SEP.
“SEP as proposed does not indicate how a non-resident person will be deemed to have created significant economic presence in Kenya therefore becoming liable to tax in Kenya,” Ms Chizeba Nnonyeh, the tax manager at Uber Africa said. She represented Mr Radford to present Uber concerns on the Finance Bill 2024.
“Taxation on digital services in Kenya is still nascent and the increase in rate from 1.5 percent to six percent is too steep. It will impact on users, drivers, the economy and send the non-resident entities directly into loss.”
Both Uber and Bolt asked the committee to delete the proposal of six percent SEPT and retain the rate of 1.5 percent. The firms also demanded the deletion of section 19 of the Finance Bill, 2024 which seeks to amend the Income Tax Act to introduce Withholding Tax on the payments being made on a digital marketplace, arguing it will include taxi passengers and purchasers of food off platforms.
“It is the payer’s responsibility to account for withholding tax when making payment. However, using the average payment for a ride of Sh500, the proposal suggests that the passenger should remit five percent (Sh25) when they take a ride and make a payment,” the companies said.
Source link : https://nation.africa/kenya/business/uber-bolt-threaten-to-pull-out-of-kenya-over-proposed-taxes–4648138
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Publish date : 2024-06-06 05:15:00
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