Digital taxi-hailing companies have warned that the six per cent Significant Economic Presence (SEP) tax proposed in the 2024 Finance Bill will adversely affect customers if passed.

Tabling their submissions before the National Assembly Finance and Planning Committee on Wednesday, Uber and Bolt said the SEP tax will increase the amount customers pay for taxis and also stifle the ride-hailing industry.

Treasury seeks to impose SEP tax on non-resident firms, targeting income from large multinationals operating in Kenya, even if they do not have a physical presence.

Any non-resident entity making money from providing business services through a digital marketplace is liable to pay the levy, per the draft law.

But Uber, which is American, and the Estonian company Bolt say the new tax will lead to high operating costs.

“Non-resident companies currently pay a 16 per cent Value Added Tax (VAT) with no opportunity to deduct input VAT. They also pay 1.5 a per cent Digital Service Tax (DST), giving an effective tax rate of 17.5 per cent on gross turnover, not profit,” Bolt’s Public Policy Manager George Abasy said.

Bolt told Parliament that SEP is similar to the three per cent turnover tax the companies pay, terming the new levy unfair to non-resident companies and foreign direct investment.

The companies want lawmakers to delete the proposal of a six per cent SEP tax and retain the rate of 1.5 per cent.

They also want Parliament to do away with Section 19 of the bill which seeks to amend the Income Tax Act to introduce a withholding tax on payments made on a digital marketplace

“The withholding should be by platform owners who make payments to platform users, not platform owners who facilitate payment,” Uber’s Tax Manager in Africa Chizoba Nnonyelu said.

The 2024 Finance Bill is sponsored by Molo MP Kimani Kuria, who also chairs the National Assembly Finance and Planning Committee.

SEP tax seeks to replace DST, where resident and non-resident digital service and digital marketplace providers pay a DST of 1.5 per cent of the gross transaction value in addition to a 16 per cent VAT.

Last July, Uganda introduced a 5 per cent DST on the gross digital services income received by non-resident providers operating in the country through the 2023 Income Tax (Amendment) Bill.

The new tax was in addition to Uganda’s 18 per cent VAT on digital services as Kenya’s western neighbour seeks to collect additional revenue from multinationals such as Facebook's parent company Meta, Amazon, Google and Netflix.