President William Ruto has outlined a raft of new measures intended to attract increased investment to Kenya and to create a more conducive operating environment for technology companies and startups.
Speaking at the American Chamber of Commerce Regional Business Summit hosted in Nairobi on Thursday, March 30, the President reiterated the need to make Kenya more competitive, maintaining that his administration would review taxation and regulatory policies.
Notably, Ruto stated the country would review the tax regime to eliminate the 1.5% Digital Service Tax (DST) in favour of the two-pillar system currently being developed by the Organization for Economic Cooperation and Development (OECD).
The Kenya Revenue Authority (KRA) collected Ksh174 million from digital service taxes in the six months to December 2022 – with US tech giants including Google, Netflix, Meta, Twitter and Microsoft among those paying up. KRA revenue from the digital service taxes is expected to surpass Ksh300 million by June, but critics question it’s larger impact on the sector.
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Speaking at the summit, President Ruto also announced that the State would scrap Value Added Tax (VAT) on exported services. The VAT on exported services was introduced in the Finance Act 2022, and is to be removed in the Finance Bill 2023.
The President stated that the tax was making Kenya uncompetitive. The Finance Act 2022 reclassified exported services, with the exception of Business Process Outsourcing, to taxable from exempt.
Another change the President announced was the fast tracking of tax refund payments to businesses. Ruto stated that verified tax refund claims would be payable within six months.
To spur the tech sector and digital economy, Ruto also announced incentives for startups. Among them is the exemption of startups from paying employe benefit tax on shares allocated to employees.
To attract and retain talent, many startups today offer employees stock options or equity. A taxation framework currently exists for employee stock/ share ownership plans (ESOPs) in Kenya.
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