Bolt and Uber may hike fares in Kenya amid govt’s 6% significant presence tax

Leading ride-hailing companies, Uber and Bolt May hike their fares in Kenya. This is due to a new 6 per cent tax levied by the Kenyan government on the major foreign companies operating within its borders. This tax is part of a new financial legislation called the Finance Bill 2024 which is currently being considered by the country’s lawmakers.

Per the finance bill, all non-resident (foreign-owned) companies will be charged a new 6 per cent tax, known as the Significant Economic Presence tax, on their gross revenue. The Finance Bill 2024 also proposes an increase of the Digital Service Tax, which both companies are eligible for due to the digital nature of their services, from 1.5 per cent to 3 per cent, translating to double the rate being paid previously. 

The bill also proposes an increase in Corporate Tax Rate from 30 per cent to 35 per cent.

In the face of the rising financial cost of doing business in Kenya, representatives of the ride-hailing companies, Uber and Bolt attended the parliamentary committee hearing where they told the lawmakers that the taxes have the capacity to tank overall revenues for them as well as income for drivers.

“By introducing the 6% Significant Economic Presence Tax, the effective rate for a non-resident in the digital market space will be 22% on gross turnover without taking into consideration the operating costs,” Bolt’s public policy manager, George Abasy said.

Uber and Bolt may not exit, but they may raise fares

Following the presentation of the Finance Bill 2024 to the Kenyan parliament and the consequences it could have on foreign companies operating in the country, there were fears that it would signal an exodus of these companies from Kenya. This is because the tax could disincentive foreign companies from investing in Kenya while forcing out those who are already running successful operations in the country. 

Uber has, however, refuted any plans to exit the Kenyan market. A company spokesperson told Kenyan Wall Street that on the contrary, the company will engage with the government to lobby for policies that would be beneficial to all industry players.

“As valuable contributors to the Kenyan digital ecosystem, we have engaged with and look forward to continued fruitful discussions with the government on the Finance Bill. Our relationship with various government agencies has been built on mutual respect and a shared vision for a better Kenya,” the Spokesperson said.

Uber and Bolt’s representatives had, however, told the Kuria Kimani-led parliamentary committee that new taxes proposed in the Finance Bill 2024 would negatively affect their operations and that they might be forced to increase ride fares in the process if they must survive.

Bolt Africa Tax Manager, Celia Kuria further pointed out this was the only way forward seeing as Kenya’s transport regulator, the National Transport and Safety Authority (NTSA) has already capped commissions at 18 per cent. Therefore they could not independently effect an increase in commissions.

“Note that the ride-hailing industry in Kenya is governed by NTSA which has capped ride-hailing commissions to 18% thereby limiting the company’s ability to generate revenue,” she said.

Drawing a parallel with Nigeria’s Companies Income Tax (Significant Economic Presence) Order, 2020, as an amendment to the country’s Finance Act 2019, it has been argued that the new bill did not stipulate what would qualify a company as having a significant economic presence. 

See also The International Tax Rule and Nigeria’s Bid to Tax Amazon, Facebook and Other Foreign Digital Companies

In Nigeria for instance, Significant Economic Presence is applicable to companies with an annual income of at least N25 million or its equivalent in other currencies. This benchmark can be adjusted from time to time. However, there seems to be no such benchmark in Kenya’s Finance Bill.

“SEP, as proposed, does not indicate how a non-resident person will be deemed to have created a significant economic presence in Kenya therefore becoming liable to tax in Kenya,” Uber Tax Manager, Chizeba Nnonyeh said.