By Winnie Kamau
Nairobi, Kenya: As the discourse on the proposed Finance Bill 2024 continues questions are being raised on whether the Proposed Bill will be a catalyst for the growth of the digital economy in Kenya.
From the recommendations of a report by a consulting firm, Viffa Consult dubbed ANALYZING THE IMPACT OF THE FINANCE BILL 2024 ON MSE GROWTH IN KENYA states that the proposed Finance Bill 2024 has included several amendments designed to support the development and sustainability of micro, small, and medium-sized enterprises (MSMEs).
The report by Viffa Consult highlights key recommendations, notably the expanded definition of “digital marketplace” and excise duty exemptions for products from the East African Community (EAC). These reforms aim to improve clarity, inclusivity, and economic integration, benefiting MSMEs across various sectors.
The report states that the Finance Bill 2024, particularly section 3, proposes an expanded definition of “digital marketplace” in the Income Tax Act (Section 3, subsection 3). This amendment is said to offer several advantages for MSMEs operating within Kenya’s burgeoning digital economy.
According to Viffa Consult, the Bill has increased clarity and expanded definition explicitly lists of various services and activities that constitute a digital marketplace. By clearly outlining what qualifies as a digital marketplace, the amendment helps MSMEs understand whether their business activities fall under this category. This clarity reduces ambiguity and the potential for non-compliance due to misunderstandings, allowing businesses to better navigate the tax landscape.
The report also notes there’s inclusivity in the detailed definition and acknowledges the diverse nature of the digital economy by enumerating specific services such as ride-hailing, food delivery, freelance services, and others. This inclusivity ensures that various MSME sectors are recognized, allowing them to operate with a clearer understanding of their tax obligations. By doing so, the bill is expected to support a wide range of digital businesses, fostering a more comprehensive and supportive regulatory environment.
The report states with a clearer framework for digital operations, the amendment of the proposed Bill would aatract more businesses to adopt digital platforms. MSMEs, especially those in traditional sectors, may be more inclined to transition to digital marketplaces, knowing that they are adequately defined and regulated. This shift not only promotes innovation but also ensures that more businesses can leverage the benefits of digitalization, such as increased reach and efficiency.
Excise Duty Exemptions for EAC Products
The Viffa report states that Section 42 of the Finance Bill 2024 introduces significant amendments to the excise duty descriptions in the First Schedule to the Excise Duty Act. These changes have several positive implications for MSMEs, particularly those engaged in regional trade.
The Bill according to Viffa states there will be enhancement of Regional Trade by excluding certain goods from excise duty if they originate from EAC Partner States and meet the EAC Rules of Origin, it is alleged that the Finance Bill 2024 promotes intra-regional trade. This move supports MSMEs by encouraging them to source and trade within the region, reducing costs associated with imports and boosting regional economic integration. Enhanced regional trade can lead to a more vibrant and resilient economy, benefiting all member states.
A cost of reduction on imported goods is noted by the Viffa Consult report for MSMEs that import goods from EAC Partner States will benefit from lower import costs due to the excise duty exemptions. This reduction in costs can improve their competitive edge, allowing them to offer more competitive pricing and enhance their market position. Lower import costs can translate into savings that businesses can reinvest in growth and development.
There’s the encouragement of local production of goods by the Finance Bill 2024, according to the Viffa report. The excise duty exemptions incentivize MSMEs to partner with suppliers within the EAC, fostering local production and supply chains. This can lead to increased demand for local goods and services, stimulating economic growth within the region. Encouraging local production helps build a more self-sufficient economy and creates job opportunities, contributing to overall economic stability.
The clear exemptions based on the EAC Rules of Origin provide MSMEs with a straightforward framework for simplified compliance, says Viffa Consult. This clarity helps businesses plan their sourcing and supply strategies more effectively, reducing the administrative burden associated with navigating complex tax regulations. Simplified compliance allows businesses to focus more on their core activities and less on bureaucratic processes, enhancing overall efficiency.
It is said that the proposed Finance Bill 2024 presents significant positive reforms for digital MSMEs in Kenya. By expanding the definition of “digital marketplace” and offering excise duty exemptions for EAC products, the bill enhances clarity, inclusivity, and economic integration. These measures support the growth and sustainability of MSMEs, encouraging digital adoption, reducing costs, and fostering regional trade. As Kenya continues to develop its digital economy, such legislative efforts are crucial in creating a supportive environment for businesses to thrive.
