Kenya’s Cabinet Secretary for the National Treasury and Economic Planning, Prof. Njuguna Ndung’u, presented the KES 3.68 trillion budget for the fiscal year 2022/23 on June 15, 2023.
The budget, which is the largest in the country’s history, aims to support economic recovery, enhance social protection, and invest in infrastructure and innovation.
The tech industry, which has been one of the fastest-growing sectors in Kenya, stands to benefit from several initiatives and incentives in the budget. Here are some of the key highlights that affect the tech sector.
Digital Superhighway and Creative Economy
The budget allocates KES 15.1 billion to fund various projects in the ICT sector, with a focus on enhancing connectivity, data security, and digital skills. Some of the major allocations include:
- KES 4.8 billion for the Horizontal Infrastructure Phase I, which will provide high-speed broadband access to all counties and government offices.
- KES 1.2 billion for Konza Data Centre and Smart City Facilities, which will host critical data and applications for the government and private sector, as well as provide smart solutions for urban management and service delivery.
- KES 5.7 billion for the Construction of Kenya Advanced Institute of Science and Technology (KAIST) at Konza Technopolis, which will be a world-class research and innovation hub for science, technology, engineering, and mathematics (STEM) education and training.
- KES 1.3 billion for maintenance and rehabilitation of the National Optic Fibre Backbone Phase II Expansion Cable, which will improve the reliability and quality of internet services across the country.
- KES 475 million for construction of Konza Complex Phase 1 B, which will house offices and facilities for the Konza Technopolis Development Authority (KoTDA) and other stakeholders.
- KES 583 million for Last Mile County Connectivity Network, which will extend fiber optic connectivity to rural areas and enhance digital inclusion.
These investments are expected to boost the digital economy and create more opportunities for innovation, entrepreneurship, and employment in the tech sector.
Transforming the Micro, Small and Medium Enterprise (MSME) Economy
The budget recognizes the vital role of MSMEs in creating jobs, generating income, and contributing to economic growth. To support MSMEs, especially those affected by the COVID-19 pandemic, the budget provides various measures to improve their access to affordable credit. Some of these include:
- KES 10 billion for the Hustlers Fund, which will provide interest-free loans to young entrepreneurs with innovative ideas and businesses.
- KES 175 million for the Youth Enterprise Development Fund, which will offer loans, grants, training, and mentorship to youth-owned enterprises.
- KES 182.8 million for Women Enterprise Fund, which will provide loans, grants, training, and mentorship to women-owned enterprises.
- KES 300 million for Provision of Finances to SMEs in the Manufacturing Sector, which will support value addition and industrialization.
These funds are expected to stimulate MSME growth and resilience in various sectors, including tech.
The budget also introduces some changes in taxation that affect the tech industry. Some of these are:
- Reduction of excise duty on fees charged for money transfer services by banks, money transfer agencies, and other financial service providers from 20% to 15%.
- Reduction of excise duty on fees charged to money transfer charges on cellular mobile providers from 12% to 10% of the excisable value.
- Introduction of a new tax on repatriated profit for non-residents at a rate of 15%, which is equal to the rate charged on dividend paid to non-residents.
- Increase of turnover tax rate from 1% to 3%, with a lower upper threshold of KES 25 million.
- Introduction of 5% withholding tax on the gross payments in respect to digital content monetization.
- Introduction of digital asset tax at 3% of the value of digital asset transferred or exchanged.
- Introduction of withholding tax on payments made to residents in respect to sales promotion, marketing, and advertising services at a rate of 5% on the gross amount.
These changes are aimed at enhancing revenue collection, promoting equity and fairness in taxation, and encouraging compliance. However, some stakeholders in the tech industry have expressed concerns that some of these taxes may hamper innovation and growth in the sector.