Bolt and Uber have issued warnings of potential closure in Kenya if parliament approves the Treasury’s proposal to impose a six percent Significant Economic Presence Tax (SEP) on gross turnover for non-resident firms, citing unsustainable costs.
The Treasury, via the Finance Bill 2024, proposes the implementation of the SEP tax, applicable to non-resident individuals earning income from service provision within Kenya through digital marketplace operations.
SEP tax aims to levy charges on revenue earned by multinational corporations with significant economic activities in Kenya, regardless of their lack of physical presence within the country.
Bolt and Uber individually informed the National Assembly’s Finance and Planning Committee that the implementation of the tax could potentially result in the downfall of the ride-hailing sector, attributable to incurred losses or slim profit margins.
The proposed Bill aims to substitute the current Digital Service Tax (DST), currently set at 1.5 percent, with the Significant Economic Presence (SEP) tax, set at a rate of six percent.
“With the introduction of the six percent SEP tax, the effective tax rate for non-residents operating in the digital market space would amount to 22 percent on the gross turnover, without factoring in operational expenses,” George Abasy, Bolt’s Public Policy Manager said according to a certain publication.
The imposition of a six percent SEP tax is poised to result in the industry’s downfall due to incurred losses or narrow profit margins,” remarked Abasy, “Non-resident companies are currently subject to a 16 percent VAT rate without the option to deduct input VAT. Additionally, they are obligated to pay a 1.5 percent Digital Service Tax (DST), leading to an effective tax rate of 17.5 percent on gross turnover, not profit.”
Cecilia Kuria, Bolt Africa Tax Manager, stated during a meeting that the Significant Economic Presence (SEP) tax, levied on gross turnover, is comparable to the turnover tax, currently set at three percent. She highlighted that this represents a significant imbalance and unfairly disadvantages non-resident entities and foreign direct investment.
Furthermore, Ms. Kuria noted that the ride-hailing industry in Kenya operates under the governance of the National Transport Safety Authority (NTSA), which has limited ride-hailing commissions to 18 percent. This limitation restricts the company’s revenue generation potential.
In light of the potential imposition of the SEP tax, Ms. Kuria emphasized that Bolt would face a tax burden of 22 percent on the top line, in addition to an 18 percent capped commission and a 16 percent VAT. Consequently, profits from a Ksh 500 ride would plummet from sh1.40 to a net loss of negative Ksh 2.
