Starting in January 2021, the Kenya Revenue Authority (KRA) will start levying a digital services tax. This means you will now have to pay an extra 1.5pc tax on products and services purchased online.
Kenya has also been toying with the idea of going cashless amidst calls for social distancing. The government has been actively calling for citizens to avoid the use of cash in a bid to curb the spread of the novel Covid-19.
Recently, in efforts towards a cashless economy, the Kenyan Government via the NTSA gave 29 lenders and IT companies licenses to offer cashless payments in Public Service Vehicles (PSVs), setting the stage for the ban of the use of cash in public transport.
So why is the government imposing taxes on cashless transactions instead of putting incentives encouraging it? For instance, why would anyone opt to pay some 1.5pc tax on goods they can easily purchase the same products offline with cash at a fairly cheaper price without the tax?
While Kenya, on paper looks like a world leader in enhancing a cashless economy, taxation threatens to completely flatten that upward curve.
What the government is doing in efforts to boost the suffering economy will most likely result in a Laffer Curve (curve used to illustrate that sometimes cutting tax rates can increase total tax revenue) which simply states that If taxes are too high along the Laffer Curve, then they will discourage the taxed activities. In this case, cashless transactions.
The Government cannot then say it is advocating for a cashless economy while pushing people to opt for the alternatives. If becoming a cashless society is a key priority taxing people who want to go cashless should not be an option in a country that is simply too dependent on cold, hard currency already.
In my opinion, Introducing the digital service tax in Kenya runs the risk of stalling the progress towards a cashless economy while only delivering a small boost to tax revenues.