Kenya’s high taxes are a disincentive for startups – Vophs Africa

When Kenya started implementing it. Finance Act In July, Wasuko Daniel Yu, chief executive of the e-commerce and delivery startup, had already begun looking for an African government “that is very interested in supporting our mission.” And it led to the relocation of the startup’s tech head office from Nairobi to Fomba, Zanzibar.

Kenya’s new law Targeted at tech companiesand has doubled. Digital Service Tax (pdf) On the gross value of online transactions, from 1.5% to 3% in January, making Nairobi less attractive to tech-based startups.

Above the annual corporate tax capped at 30%, startups like Vasco that supply goods will also pay an excise tax. The Finance Act also increased the capital gains tax rate from 5% to 15%, effective from January 2023.

Why did Vasuko move to Zanzibar?

Yu told Vophs that he found Zanzibar’s fiscal policies more supportive of his expansion plans across Africa, and left Nairobi because heavy taxes translate into lower profit margins for Vasco—which is valued at $625 million. – which has now spread to six African countries six years into its existence. First.

“Zanzibar has lower tax rates, and better financial incentives. It’s also easier to secure work and business visas than in Nairobi,” Yu said. Establishing its base in Zanzibar allows Vasco to better understand its Swahili-speaking clients in mainland Tanzania, whose startup policies are equally attractive.

On August 29 Yu launched the Wasoko Innovation Hub in Fomba in partnership with the Zanzibar government, which has become home to “more than 500 visionary engineers, product managers, UX designers and researchers from Africa and around the world.

“Vasco is looking for a location where we can bring together the best talent from across the continent and beyond to innovate and develop new products and services for our customers,” he said, adding more than $15 million to the island. promising to secure the investment of in the next decade.

Finance Act of Kenya

The new law also implemented one 10% excise duty An additional $0.04 on all imported mobile phones and on all imported SIM cards, set to erode gains in the Internet economy. On their part, digital lenders are now paying. 20% Excise Tax On all loans to consumers, access to credit becomes more expensive and default increases.

“Working in Kenya is becoming more expensive due to the introduction of taxes, fees, levies, and charges,” They say Kenya Association of Manufacturers Chairman Mucai Kunyiha. “The new tax measures are punitive.”

With most businesses going online during the Covid-19 pandemic, the Kenyan government has cast its tax net on digital platforms that offer e-commerce, e-sports, digital content, and streaming services, and they have to pay their regular profits. forcing them to raise their fees to cover In an effort to crack down on tax fraud, the Kenya Revenue Authority (KRA) has been criticized for violating data privacy rights and spying on citizens’ online chats.

Silicon Zanzibar?

Zanzibar, which is part of Tanzania, offers the most affordable internet in East Africa. “We have an average download and upload speed of 22 megabits per second,” Yu tells Vophs.

“No longer will tech companies need to open offices and relocate their people to Dubai or London to manage their operations in Africa. We are an open and accessible platform for all Zanzibar-based tech companies and their team members. Providing the environment. says Mudrick SoragaZanzibar Minister of Investment and Economic Development.

Fumba is set to become the central hub for Silicon Zanzibar, and is expected to streamline the issuance of work visas for skilled tech workers from across Africa and beyond to relocate to Zanzibar. To further attract tech companies, the government is offering tax incentives under the Free Economic Zone program, including a ten-year corporate income tax exemption for startups like Vasco.

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