Address Taxation Queries Raised by Technology Firms

Business Daily (Nairobi)

2 June 2011

opinion

News that Kenya is losing billions in foreign exchange due to heavy taxation and penalties should be cause for concern for policy-makers, especially in light of plans unveiled in Budget announcements as an incentive to ICT sector.

Kenya ICT firms say they are being forced to open offshore accounts in countries that have more favourable tax regimes than Kenya, thus denying the country access to money that could be re-invested into the sector.

In Kenya, the companies face taxes of over 30 per cent on funds they intend to repatriate, compared to the two per cent they are charged in neighbouring countries.

As the sector starts to grow in terms of being a consistent source of revenue for the government, the State needs to identify ways to both increase its tax net and encourage investors. Analysts say that lowering the taxes charged once money is brought into the country will meet both objectives.

This is especially critical as Kenya makes a shift to become a knowledge-based economy. Such economies rely heavily on innovations to transform resources into products, processes and services.

They require clearly defined and supportive policies, institutional and legal frameworks that effectively address citizens’ needs and aspirations as well as promote business. Most modern economies hinge their growth strategies on their resources, research, innovation and technological abilities.

The fact that the same repatriation debate is taking place in more advanced markets indicates that Kenyan businesses are not making frivolous claims. In the United States, companies in the ICT sector are asking the government to lower repatriation taxes to five per cent.

Several companies including Apple, Microsoft, Adobe and Cisco Systems have actively backed legislation introduced by two legislators to allow multinational companies to bring home overseas profits for one year at a 5.25 per cent tax rate from 30 per cent. According to JPMorgan estimates in 2004, the repatriation measure could boost the US Gross Domestic Product by 0.8 percentage points in 2005 and created up to 880,000 extra jobs.

Similar steps in Kenya would provide impetus for growth.

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