Govt Proposes Tax On Brand Ambassadors, Instagram 'Paid Partnerships'

The proposed Bill will also seek to include to the tax bracket advertisements through websites, social media platforms or similar networks by partnering with brands...

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May 4, 2023 - 11:55 Updated: May 4, 2023 - 15:31
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Govt Proposes Tax On Brand Ambassadors, Instagram 'Paid Partnerships'
Collage image of Njugush, Azziad Nasenya, Eve Mungai and Brian Mutinda. /VIRALTEAKE

The National Treasury is proposing to amend Section 2 of the Income Tax Act which will seek to incorporate online brand ambassadors advertising brands on social media platforms for pay, into the tax bracket.

According to a copy of the Finance Bill 2023 obtained by Viral Tea, the Treasury is seeking to include a withholding tax of 15 per cent for digital content monetisation whereby content creators are contracted by companies to market their products on social media platforms where they attract a huge following.

The proposed Bill will also seek to include to the tax bracket advertisements through websites, social media platforms or similar networks by partnering with brands, including endorsements from sellers of such brands.

In this case, it would mean the inclusion of the popular "paid partnerships" on Instagram (IG), a move which would hit online influencers hard.

A paid partnership label on Instagram. /SOCIAL NATION

The Bill termed "digital content monetisation" as "offering for payment entertainment, social, literal, artistic, educational or any other material electronically through any medium or channel."

It further seeks to include sponsorship where a brand owner pays a content creator for content creation and promotion as well as affiliate marketing where the content creator earns a commission whenever the audience of the content creator clicks on the product displayed.

Also to be included are subscription services where the audience pays a periodic fee to access the content and support the content creator.

A good example of this is OnlyFans, which is well-known for hosting adult content. Its popularity shot upwards during the COVID-19 pandemic as sex workers, musicians, and online influencers used it to charge fans for exclusive access to photos, videos, and other material.

Also to be included are merchandise sales where physical goods and services are sold featuring a logo, brand or catchphrase to the audience of the content creator, eBooks, courses, or software and membership programmes for exclusive content including early access.

"Licensing the content including photographs, music or other businesses or individuals for use in the user's own projects; or crowdfunding for raising funds for specific goals for a content creator or another person," the Bill reads in part.

Bill Proposes Mandatory Contributions To Affordable Housing

The Bill is also proposing amendments to the amendment of the Employment Act of 2007 to compel employers to contribute to the National Housing Development Fund for each of their employees.

Simply put, employers will now have to pay three per cent of their employees' monthly basic salary to the Fund, and employees will also be required to contribute three per cent of their monthly basic salary. However, the total contribution from both the employer and employee cannot exceed Ksh5,000 per month.

The contributions made to the Fund will benefit employees in two ways, one of them being that employees who qualify for affordable housing can use their contributions to buy a house under the affordable housing scheme.

Secondly, for those who are not eligible for affordable housing, their contributions will be transferred to a retirement benefits or pension scheme, or to someone registered and eligible for affordable housing under the National Housing Development Fund.

Alternatively, they may receive their contributions in cash, but this will be subject to income tax. All contributions made to the Fund will earn interest based on the return on the Fund.

If the Finance Bill 2023 is passed, employers will have to remit both employee and employer contributions to the Fund before the ninth day of the following month after the deduction was made.

To participate in the affordable housing scheme, the Cabinet Secretary responsible for matters relating to housing, in consultation with the Cabinet Secretary responsible for matters relating to finance, will make Regulations specifying the qualifications required.

Houses in the Kings Serenity affordable houses project in Kajiado County commissioned by President William Ruto on October 18, 2022. /STATE HOUSE KENYA

If the Finance Bill 2023 is passed by Parliament, the three per cent deduction from employees' salaries means that they will be forced to deal with less take-home pay each month, a matter which affects their budget.

The Finance Bill 2023 also proposed an amendment to the Employment Act of 2007 to provide for 35 per cent income tax on all monthly salaries above Ksh500,000.

Excise Duty On Wigs

A tax on specific goods such as beer, tobacco, and petroleum products. The rate of excise duty varies depending on the type of product.

In this regard, the government will tax wigs, human hair, false beards, eyebrows and eyelashes at a 5 per cent excise duty.

Bitcoins

Digital assets such as cryptocurrencies, token codes, and Non-Fungible tokens (NFTs) are subject to taxation under the Income Tax Act. Treasury considers digital assets a property, and any gains realized from their sale, exchange or disposal are subject to capital gains tax (CGT).

The CGT rate in Kenya is currently 5 per cent for gains above Ksh500,000. This means that if an individual gains Ksh600,000 from the sale of digital assets, they would be required to pay CGT of 5 per cent on the amount above Ksh500,000, which is Ksh5,000.

It's important to note that individuals must keep accurate records of their digital asset transactions, including the date of acquisition, cost of acquisition, and proceeds from the sale or disposal of the assets. This information should be used to calculate the CGT liability.

Additionally, if an individual trades or mines digital assets, the income earned from these activities is subject to income tax. The income tax rate for individuals in Kenya ranges from 10 to 30 per cent, depending on the income bracket.

Marketing services will be subject to a 5 per cent withholding tax, while digital content monetisation will be subject to a 15 per cent withholding tax.

"Digital asset” includes anything of value that is not tangible and cryptocurrencies, token codes, and numbers held in digital form and generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration that can be transferred, stored or exchanged electronically; and a non-fungible token or any other token of similar nature, by whatever name called; and the income derived from transfer or exchange of a digital asset” means the gross fair market value consideration received or receivable at the point of exchange or transfer of a digital asset," read part of the Finance Bill 2023.

An image of bitcoins. /FILE

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