E-commerce companies in Kenya have raised alarm over a proposed 5 percent withholding tax (WHT) on local traders selling goods online, cautioning that the move could erode the progress made in digital commerce. The proposed tax, outlined in the Laws (Amendment) Bill, 2024, also includes a 20 percent withholding tax on goods sold by foreign vendors without a local presence, targeting global e-commerce giants like Amazon and Alibaba.
Jumia, the New York-listed e-commerce platform, is leading efforts to oppose the proposed tax, urging lawmakers to remove the clause from the Bill. The company argues that the tax will harm both local and foreign vendors who rely on platforms such as Jumia and Kilimall to reach customers.
If the Bill is enacted, digital platforms will be required to withhold 5 percent of payments made to local traders and 20 percent for non-residents. This amendment to the Income Tax Act would place a significant compliance burden on platforms, which are already grappling with other tax obligations.
Kenya’s online commerce sector has witnessed significant growth, with platforms like Jumia, Glovo, and Uber Eats becoming integral to urban life as more Kenyans embrace online shopping for its convenience. However, Vinod Goel, Jumia’s East Africa CEO, warned that the proposed WHT could drive vendors away from digital marketplaces to physical stores or social media, where their sales would not be subject to the tax.
“This mass exodus from e-commerce platforms will undermine revenue collection and have the opposite effect of what the tax aims to achieve,” Goel told Members of Parliament.
E-commerce companies also warn that the tax could lead to higher prices for consumers as vendors and platforms pass on the additional costs. Jumia highlighted concerns over strained cash flows and increased administrative expenses for businesses already paying the 1.5 percent turnover tax.
The sector has become a critical source of employment for young Kenyans, many of whom run online stores or work as delivery agents. Jumia and similar platforms primarily operate as intermediaries, earning commissions based on a percentage of the selling price, rather than owning the goods and services sold.
E-commerce stakeholders are urging the government to reconsider the proposal, emphasizing that an enabling regulatory environment is essential for sustaining the growth of Kenya’s digital economy.