The Kenya Revenue Authority (KRA) proposed a new digital tax targeting global tech giants like Netflix, Airbnb, and AI tools such as ChatGPT, aiming to capture revenue from Kenya’s booming digital economy. The Income Tax (Significant Economic Presence Tax) Regulations, 2025, replace the 2020 Digital Service Tax (DST), introducing a 10% tax on gross turnover and a 30% tax on deemed profits for non-resident companies.
This sweeping levy covers services like streaming, e-books, apps, ride-hailing, and online accommodations, sparking debates over affordability and innovation.
The KRA’s draft regulations, open for public comment, define taxable entities based on “significant economic presence” in Kenya, determined by factors like Kenyan IP addresses, local bank payments, or billing addresses.
For example, Netflix’s subscription fees or Uber’s ride commissions from Kenyan users would face the tax. KRA Commissioner General Humphrey Wattanga emphasised fairness, stating, “Global firms profiting from our market must contribute to our tax base.” The tax applies a formula where 10% of a company’s Kenyan revenue is treated as taxable profit, then taxed at 30%.
This move aligns Kenya with global trends, as countries like India and Indonesia adopt similar taxes. In 2024, Kenya’s digital economy contributed KSh 2.5 trillion to GDP, yet many multinationals operate without physical presence, evading traditional taxes.
The new tax aims to generate KSh 15 billion by June 2025, building on the KSh 5.3 billion collected from the DST in 2023. However, critics warn it could raise costs for consumers, with services like ChatGPT already set to add 16% VAT from May 2025.
Tech advocates, including KICTANet, argue the tax risks stifling innovation. “High taxes on digital tools could burden startups and educators relying on affordable AI,” said Grace Githaiga, KICTANet’s CEO. Small businesses using apps for automation or content creation may face higher costs, potentially widening the digital divide.
The regulations exempt non-residents with a permanent Kenyan establishment, but enforcement challenges remain, especially for cryptocurrencies and data monetisation.
Public feedback is due by October 2025, with the tax set to take effect in January 2026 if approved. As Kenya balances revenue goals with digital growth, the KRA’s ambitious plan underscores the challenge of taxing a borderless economy while fostering innovation.