Kenya to Lose Tax Revenue from US Giant Companies as Donald Trump Withdraws from OECD Treaty

• The OECD global tax treaty sought to levy a minimum 15% tax rate on international companies like Google, Amazon and Microsoft
• However, US President Donald Trump's move to withdraw from the treaty could hit tax revenue generated by US multinational companies in Kenya
• The Tax Laws (Amendment) Act, 2024, introduced the significant economic presence (SEP) tax targeting multinationals without a physical presence in the country

TUKO.co.ke journalist Japhet Ruto has over eight years of experience in financial, business, and technology reporting and offers profound insights into Kenyan and global economic trends.

US President Donald Trump has announced his government's withdrawal from the OECD global tax treaty, stating that it has "no force or effect" in the US.

Why Kenya will be affected by Trump's order

The action could jeopardise international tax cooperation and hit tax revenue generated by US multinational companies in Kenya and other countries.

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The treaty, which was incorporated in Kenya's Tax Laws (Amendment) Act 2024, sought to levy a minimum 15% tax rate on international companies like Google, X, Amazon, Microsoft, and Meta (Facebook) that generate billions in revenues.

"The OECD Global Tax Deal supported under the prior administration not only allows extraterritorial jurisdiction over American income but also limits our nation’s ability to enact tax policies that serve the interests of American businesses and workers," the White House stated.

"This memorandum recaptures our nation’s sovereignty and economic competitiveness by clarifying that the global tax deal has no force or effect in the United States," it added.

The Tax Laws (Amendment) Act, 2024, introduced the significant economic presence (SEP) tax to replace the digital service tax. The new tax targets multinationals without a physical presence in the country.

However, after Trump's move, the National Treasury will face a dilemma in collecting the tax.

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Why Kenya imposed SEP

The National Treasury refuted claims that local consumers were the target of tax on internet and social media services, stating that the people impacted were the platform owners.

Treasury Cabinet Secretary (CS) John Mbadi defended the introduction of the tax, arguing that foreign firms in the digital marketplace must pay tax for the infrastructure set up by the state.

The CS asked Kenyans to support the tax, claiming that multinational organisations generate billions but pay less tax.

Among the targets of the tax are ride-hailing, food delivery, freelance and professional services.

What Kenya should do regarding OECD global tax treaty

Political economist Leshan Loonena Naisho told TUKO.co.ke that Kenya could face pressure to renegotiate trade terms under a second Trump presidency.

"The 'America First' policy approach might lead to demands for more favourable terms for US businesses. While Kenya's special relationship status could provide some protection, the push for bilateral trade agreements indicates potential adjustments to trade terms, particularly for textiles and agricultural products," Naisho explained.

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Naisho recommended that Kenya should focus on improving its business environment to attract US investment, particularly in the technology and manufacturing sectors.

What happened to US foreign aid?

In other news, the US government granted a waiver allowing lifesaving humanitarian assistance to resume, despite an earlier executive order suspending foreign aid.

The waiver permits essential aid like food, medicine, and shelter but excludes programmes related to family planning, DEI initiatives, and transgender surgeries.

Humanitarian organisations faced funding uncertainty after a dollar-billion aid freeze, forcing many to halt operations before the waiver was granted.

Proofreading by Mercy Nyambura Guthua, journalist and copy editor at TUKO.co.ke

Source: TUKO.co.ke