Viffa Statement on Observation made by Finance Bill 2024 committee on Introduction of investment allowance for builders of digital marketplace
Viffa submitted a new proposal as captured in the committee report as follows;
1560. Amend the Section 1(1) of the Second Schedule of the Income Tax Act to include digital marketplace platforms as eligible for investment allowance to read as follows: –
“Digital Marketplace Platform Development by an eligible start-up company: 50% in the first year of use”.
Justification is also captured in the report as below
1561. The amendment seeks to extend investment allowance benefits to the costs incurred in building digital marketplace platforms. Specifically, this amendment would classify the development of these platforms as qualifying capital expenditures. It will encourage digital innovation, economic growth, and employment and will also level the playing field between traditional and digital businesses, ensuring the tax system evolves in line with the changing nature of the economy.
The committee made the following observation. The Committee noted the stakeholder’s proposal but was of a different view that this would lead to revenue loss.
Viffa’s Rejoinder to committee’s observation
The Kenya Kwanza Administration under 2024 Budget Policy Statement (BPS), reaffirms the priority policies and strategies outlined in the Bottom-Up Economic Transformation Agenda (BETA) and as prioritized in the Fourth Medium Term Plan of the Vision 2030 five key areas being; MSMEs, Digital superhighway and creative industry, Agricultural Transformation and Inclusive Growth, Housing and Settlement and Healthcare.
SMEs are the backbone of Kenya’s economy contributing significantly to job creation and economic growth. However, their full potential remains untapped due to various factors such as access to market, access to finance, management skills gap and regulatory challenges among others.
Access to market has been cited as one of the challenges Kenyan SMEs face and is a major contributor to their high mortality rate of over 70 per cent within 3 years. Access to the export market by SMEs is further hindered by little to no value addition leading to lack of competitive advantage hence little to no solid value proposition.
According to the World Bank, the availability and use of digital technologies is strongly linked to economic growth, innovation, job creation and inclusion. Sub Saharan Africa continues to face significant challenges in digital development underpinned on ; low infrastructure coverage, access and quality, affordability and mobile connectivity challenges among others.
To support the growth of the digital economy , Government of Kenya must focus on:
- Incentivising development of local digital platforms through investment allowance just like they do for brick and mortar manufacturing to enable Kenyan startup compete globally and enable Kenya to be a net exporter of tech rather than consumers only . Taxing a new struggling sector with no incentive is a zero sum game that will cripple the sector.
- Increasing broadband coverage where an average of 15 percent of the population are not covered as well as enabling access to the 59 percent on average of the population who live in connected areas but remain unconnected by collaboratively addressing the root socio economic challenges they face.
- Data center infrastructure
- Connectivity regulatory alignment at the East Africa Community Level to allow seamless cross boarder connectivity (International Telecommunication Union)
- Stable and accessible electricity