News Column

Tax clarity is needed on IT and real estate developments

June 9, 2014

Samuel Okumu -1



The spread of Kenya's digital economy has brought about many benefits in terms of growth, employment and general social well-being.

At the same time, it has given rise to a number of challenges for policymakers. These challenges extend well beyond domestic and international tax policy to touch on areas such as international privacy law and data protection as well as accounting regulations.

Digital technology products in Kenya include various applications created to bridge the local content gap, internet marketing and selling, online music sales, distance learning, cloud computing and cashless payment solutions.

Digital technology has the potential to enable economic actors to operate in ways that avoid, remove or significantly reduce their tax liability. This may increase the pressure on a smaller number of taxpayers who compensate for their related loss of revenues.

But some economic actors widely adopt business models that make it difficult to determine the jurisdiction in which value creation occurs. This creates a dilemma on how such enterprises add value and make their profits in relation to existing tax laws that are heavily pegged on definition of source and residence of income.

On real estate, Kenya is one of the few markets in the world with a vibrant real estate sector offering a good investment opportunity. But the legislation governing this sector has been poorly implemented and threatens the future of the sector.

Regulations

Tax regulations and incentives in the real estate sector have been slippery and seem to be out-of-touch with the current product and service offerings employed by stakeholders.

While the industry thrives on investing through joint ventures and creation of investment vehicles like REITs and mortgage houses, the existing regulations are focussed on harvesting taxes without providing for adequate capital allowances that should allow investors to at least break even.

The condition for putting up social infrastructure by commercial building developers is unfair to these investors and is unheard of in incentives provided to other sectors like agriculture, petroleum exploration, mining and shipping.

With the rise in both cost of living and doing business in Kenya, it is important that the government prioritises making the real estate sector attractive.

The introduction and streamlining of tax incentives in the sector will ensure affordable housing for both residential and commercial purposes, reduced unemployment levels and general social wellbeing of Kenyans.

Stakeholders in the ICT and real estate sectors are looking forward to a budget that will not only reflect the complexities in their business but also ensure they contribute an equitable share of tax to the government.

The writer is a tax analyst.


For more stories covering the world of technology, please see HispanicBusiness' Tech Channel



Source: Business Daily (Kenya)


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters