In its submission, ARTICLE 19 Eastern Africa (or EA) urges the National Assembly’s Departmental Committee on Finance and National Planning (the Committee) to use the Finance Bill (2020) as an opportunity to protect Kenya’s nascent digital sphere and guarantee people’s digital rights in Kenya, and the Eastern Africa region.
The proposed Digital Service Tax (DST) proposal builds on the ‘digital market-place’ provisions in the Finance Act (2019). These vague and ill-defined provisions are affecting Kenya’s dynamic digital sphere and have introduced legal uncertainty. This is because Kenyan authorities have so far failed to regulate who is captured by the ‘digital market-place’ provisions (i.e., start-ups, corporations, cloud platforms etc.,) and how they will be taxed (including the existence of a digital tax infrastructure).
“The Committee should fix last year’s uncertainty and ensure that the digital service tax proposal respects and promotes Kenya’s constitutional and international human rights obligations. Kenya should now demonstrate her sincerity to protect the dynamism of the digital sphere and guarantee people’s digital rights by adopting comprehensive, rather than ill-conceived, digital tax measures,” said Mugambi Kiai, Regional Director at ARTICLE 19 Eastern Africa.
ARTICLE 19 EA’s submission recognises the need to balance diverse public and private interests. As a point of first call, the Committee should ensure that any digital economy taxes, such as the proposed DST, are founded on a prior and thorough human rights impact assessment (HRIA), including a cost-benefit analysis – which has to be subjected to extensive public scrutiny. This HRIA should take into account the direct and indirect impact of digital tax provisions on people’s human rights. Pending completion of this assessment, ARTICLE 19 EA recommends the imposition of a moratorium on all existing and proposed digital tax measures (at the income tax and VAT levels) in Kenya.
Further, to mitigate against any disproportionate impacts of tax provisions on consumers’ rights to freedom of expression and ensure that the dynamism of Kenya’s digital sphere, including the Internet, is protected, the Committee should ensure that clear and unambiguous definitions are included in the Finance Bill (2020) for:
- ‘digital market-place’: clearly define which markets and economic actors are captured by this definition to ensure clarity and legal certainty for economic actors and citizens; and
- ‘digital services’: clearly define which services are captured by this definition to ensure clarity and legal certainty for economic actors and citizens.
“From experience we know that digital taxation severely impacts people’s rights to freedom of expression and access to information. In 2018, the imposition of a 15% excise duty tax on telephone and internet services in Kenya led to an increase in the cost of calls and data overnight. In Uganda, the ‘Over-the-Top’ tax severely impacted ‘internet access’ drives and reduced internet penetration rates by 12.4% in three months,” continued Mugambi Kiai.
ARTICLE 19 EA’s submission recognises that fairness, trust, plurality and innovation can only be guaranteed by adopting a differentiated, rather than a ‘one-size-fits-all’ approach. The Committee should ensure that any digital economy taxation proposal introduced under the Finance Bill (2020):
- is based on a differentiated approach which takes into account the direct and indirect impact of digital tax provisions on people’s human rights, rather than adopting on a ‘one-size-fits-all’ approach. This differentiated approach should promote innovation, local entrepreneurship and protect users’ freedom of expression; and
- applies a minimum threshold requirement which pays homage to the divergent financial and institutional capabilities of diverse economic actors offering services using digital platforms and technologies, including the Internet. This will allow the Committee to take into account the profit earned by different actors in Kenya and their role in the redistribution of wealth and the promotion of social justice in the country.