This dissertation explores the concept of the digital economy, its rapid growth, and the tax challenges it has introduced, both locally and internationally. It examines the general characteristic of a sovereign state and its inherent right to tax source on income generated within its jurisdiction. The dissertation attempts to investigate the taxability of the digital economy where business is conducted without the requirement of a physical presence, a pre-requisite for tax administration. How can states and especially Kenya detect permanent establishment, for purposes of tax administration, for an economy that is heavily reliant on intangible assets and a business model based on data, network effects, and user-generated content. It therefore, focuses and looks at the scope of Kenya’s legislative and policy frameworks and its effectiveness in taxing the digital economy.
Digital businesses and especially multinational digital enterprises have been able to take advantage of the tax laws and policies that were written for an industrial age and are ill suited for today’s digital economy. The Action Plan on Base Erosion and Profit Shifting, by the Organization for Economic Co- operation and Development set out to answer the fundamental issues of BEPS (aggressive tax avoidance planning strategies), but it in itself fell short of expectations as it was not able to recommend practical, implementable solutions that would close the gaps that exist in the digital economy tax administration. The findings revealed that BEPS is not a single problem faced by all states but states face different BEPS problems and evaluate them from their own state-centred perspectives. Hence, the development of many interim measures by different states to tax the digital economy as the international community is still trying to come to a consensus on the possible, practical solutions.
The current Kenyan tax framework on taxation of the digital economy is obscure as only recent Bills tabled in Parliament try and address the issue in depth. In light of the findings of this research, it was established that the problem is not so heavy on laws and regulation on taxation of goods sold electronically, but rather, implementation of the applicable laws where they exist. The paper finally recommends possible amendments to the Kenyan legal framework and the proposed amendments are assessed by means of comparison with what has taken place in other jurisdictions.
Table of Contents
CHAPTER ONE: INTRODUCTION
1.1 Background to the Problem
1.2 Statement of the Problem
1.3 Hypothesis
1.4 Research Questions
1.5 Theoretical Framework
1.6 Literature Review
1.7 Research Methodology
1.8 Chapter Breakdown
CHAPTER TWO: THE INTERNATIONAL REGIME ON TAXATION OF THE DIGITAL ECONOMY
2.1 Nature and Scope of the International Regime
2.2 BEPS Project
2.3 The Digital Economy and the Beps Project
2.4 Principles Associated with the International Tax Regime
a) Effectiveness and fairness
b) Neutrality
c) Efficiency
d) Certainty and simplicity
e) Flexibility
2.5 Current Developments in Taxation of the Digital Economy
2.6 Conclusion
CHAPTER THREE: KENYA’S TAX REGIME
3.1 Introduction
3.2 History of Kenya’s Tax Regime
3.2.1 Pre-colonial Period
3.2.2 Colonial Period
3.2.3 Post Colonialism
3.3 Kenya’s Current Legislative and Policy Tax Framework
3.3.1 Income Tax
3.3.2 Capital Gains Tax
3.3.3 Value Added Tax
3.3.4 Import Duty
3.3.5 Excise Duty
3.4 Kenya’s Legal Framework on Taxation of the Digital Economy
3.4.1 Kenyan concept on source and residence
3.4.2 Local developments
3.5 Conclusion
CHAPTER FOUR: TAXABILITY OF THE DIGITAL ECONOMY
4.1Introduction
4.2 Key Considerations for Taxing the Digital Economy
4.3 Challenges in Taxing the Digital Economy
4.3.1. Jurisdiction
4.3.2. Characterization
4.3.3.Value Added Tax (VAT)
4.4.4.Base Erosion and Profit Shifting
4.4 Measures Introduced to tax the Digital economy
a. Corporate Tax
b. Value Added Tax (VAT)
c. Turnover Tax or Equalisation Levy
4.5 Conclusion
CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS
5.1 Conclusion
5.2 Recommendations
Research Objectives and Themes
This dissertation explores the complexities of taxing the digital economy, focusing specifically on the effectiveness of current Kenyan legislative and policy frameworks. It investigates the inherent difficulties of applying traditional tax principles—which rely on physical presence—to modern, virtual business models, while also evaluating global responses to base erosion and profit shifting.
- The concept of the digital economy and its impact on traditional tax administration.
- The jurisdictional and characterization challenges in taxing cross-border digital services.
- The role of international frameworks like OECD's BEPS in shaping local tax policies.
- An analysis of Kenya’s current tax regime and proposed reforms for the digital era.
Excerpt from the Book
4.2 Key Considerations for Taxing the Digital Economy
Tax is a tool that is designed to achieve a lot more than merely collecting revenues. Other objectives that can be achieved through taxation of the digital economy include economic justice, supervision, and protection of both consumers and genuine entrepreneurs from the vagaries of an unchecked system of transaction. The two key scholars who talk about the economic aspect of taxation are, Adam Smith and, closer home in Africa, Ibn Khaldun. Adam Smith’s cannons of taxation, which are economy, equity, convenience and certainty, embody the need for having taxation regimes that cater for the needs of the society. In The Wealth of Nations, Adam asserts that a good tax system should be simple, fair and predictable in order to support the people’s capacity to work and generate wealth. The ideal of fairness is reflected in the concepts of horizontal and vertical equity, which entail applying the same yardstick of taxation for people who are at the same level and taxing people in varying tax brackets differently, which is determined by financial capacity to earn.
Summary of Chapters
CHAPTER ONE: INTRODUCTION: This chapter introduces the problem of taxing the digital economy, outlining the research scope, theoretical framework, and the methodologies used to study the Kenyan context.
CHAPTER TWO: THE INTERNATIONAL REGIME ON TAXATION OF THE DIGITAL ECONOMY: This chapter analyzes the international tax landscape, focusing on the BEPS project, the limitations of traditional tax regimes, and the principles guiding international taxation in the digital age.
CHAPTER THREE: KENYA’S TAX REGIME: This chapter provides a historical overview of Kenya’s taxation system, evaluates the current legislative framework, and examines the application of existing laws to digital business models.
CHAPTER FOUR: TAXABILITY OF THE DIGITAL ECONOMY: This chapter discusses the specific jurisdictional and characterization challenges Kenya faces, while reviewing interim tax measures that have been implemented or proposed.
CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS: This final chapter synthesizes the findings and provides policy recommendations to improve Kenya's tax administration regarding the digital economy.
Keywords
Digital Economy, Taxation, Kenya, Base Erosion and Profit Shifting (BEPS), Permanent Establishment, Tax Policy, E-commerce, Value Added Tax (VAT), Digital Services Tax, Legislative Framework, International Tax Principles, Revenue Authority, Source Principle, Residence Principle, Tax Administration
Frequently Asked Questions
What is the core subject of this research paper?
The paper examines the challenges associated with taxing the digital economy within the Kenyan legal framework, specifically addressing the mismatch between traditional tax laws and modern digital business models.
What are the primary thematic areas covered?
The research covers international tax norms, the BEPS (Base Erosion and Profit Shifting) project, the history and current structure of Kenya's tax system, and the unique problems posed by digital businesses operating without physical presence.
What is the main objective of this research?
The primary goal is to assess whether Kenya's current legislative and policy frameworks are sufficient for taxing the digital economy and to recommend practical strategies for implementation.
Which scientific methodology is applied in this study?
The researcher uses a textual analysis method, examining primary sources such as international conventions, national legislation, and case law, alongside secondary sources like academic textbooks and journal articles.
What is discussed in the main body of the work?
The main body evaluates international tax regime shortcomings, details Kenya’s historical and current tax laws, identifies jurisdictional and characterization obstacles, and analyzes various interim measures like digital services taxes.
Which keywords best characterize this work?
Key concepts include the Digital Economy, Taxation, BEPS, Permanent Establishment, Kenyan Legislative Framework, and Tax Administration.
How does the author explain the difficulty of taxing digital giants in Kenya?
The author argues that traditional tax laws rely on the concept of 'physical presence' or 'permanent establishment,' which digital platforms often lack, making it difficult for the Kenya Revenue Authority to trace and tax income generated by these services.
What specific Kenyan developments are mentioned?
The paper highlights recent legislative attempts, such as the Finance Bill 2019 and the Digital Economy Blueprint, which aim to bring online services, marketing, and advertising activities into the tax net.
What are the author's final recommendations?
The author suggests increasing transparency between tax administrations through automatic information exchange and adopting concepts like 'Significant Digital Presence' or specific withholding taxes to better capture revenue from digital transactions.
- Citar trabajo
- Gillian Neky (Autor), 2019, Taxation of the Digital Economy, Múnich, GRIN Verlag, https://www.grin.com/document/514933
