Like many governments around the world, the Government of Kenya (GoK) has unveiled an initiative to incorporate individuals working remotely for Kenyan organizations into its tax system.
A proposal for this initiative is included in the Finance Bill of 2024, with implementation set to be phased in on July 1, September 1 and January 1, 2025.
The key proposal in the bill is a requirement that employees working remotely outside Kenya for Kenyan-based employers should have a Kenya Revenue Authority (KRA) Personal Identification Number (PIN). In effect, the employers will be expected to ensure that employees they engage have the required tax PINs, pay and file the requisite taxes.
The blog outlines a strategic approach to achieving this objective, effectively ensuring compliance while minimizing disruption and administrative burdens. Additionally, it highlights how the Remote Working Visa (RWV) can effectively bolster tax revenues, leveraging Kenya's world-class hospitality and telecommunications infrastructure.
Impacts of Remote Work in Kenya
Remote working has been steadily growing in Kenya and worldwide since the outbreak of the COVID-19 pandemic. Consequently, many countries have developed visa options to accommodate those interested in living as remote or digital nomads within their borders.
According to the Kenya Private Sector Alliance (KEPSA), 2.4 million Kenyans are engaged in remote work, thanks to the country's efforts to improve internet penetration, which now stands at 85%. As global companies increasingly seek remote talent from Africa, Kenya is gradually reaping the benefits due to its well-educated and growing talent pool.
It is our considered view that the above provision of ensuring that remote workers have PINs for tax-related purposes must be complemented by the adoption of the RWV for foreign nationals intending to live in Kenya as remote workers of their employers based abroad.
This is because the RWV remains a viable tool to improve tourism in the country. Generally, its benefits entail, among others, improved revenue generation for the country through spending on accommodation, dining, transportation and recreational activities; and job creation in associated sectors of the economy.
Additionally, it also serves as a catalyst for entrepreneurship for locals who set up businesses to meet the needs of remote workers ranging from IT support to childcare.
Making the Remote Work Registration Initiative Successful
While boosting government revenues may require a mix of proven and innovative measures, the following strategic initiatives are essential for the success of the remote work registration program.
- Ensure legislative clarity. Clearly define remote workers to avoid confusion among stakeholders. Additionally, amend tax legislation and immigration laws to explicitly define who is eligible as a remote worker. These may include individuals residing outside Kenya but providing services to Kenyan organizations as well as digital nomads who may be based in Kenya at certain times but otherwise be working for entities outside of Kenya. Clear definitions will reduce ambiguity and ensure that all parties understand their obligations.
- Deploy a public awareness campaign. Undertake an awareness campaign in the country, inviting participation and commentary from related businesses. Such a campaign must include relevant government agencies in the tax and tourism sections. Additionally, multiple communication channels, such as social media, webinars, government websites and traditional media must be used to inform remote workers and Kenyan organizations about the new tax requirements. Increasing awareness ensures that all stakeholders are informed about their responsibilities and the steps they need to take to comply with the new regulations.
- Simplify the tax registration process by developing a user-friendly online portal. Create or update an existing online portal to facilitate easy registration, filing and payment of taxes by remote workers. Simplifying the registration and compliance process will encourage voluntary compliance and reduce administrative burdens for the taxpayers, the employers and the tax authority.
- Collaborate with organizations: Engage with Kenyan organizations and MNCs closely employing remote workers to ensure they understand their role in facilitating compliance. This can include providing information sessions and resources to HR departments and payroll teams. Firms are crucial intermediaries in ensuring that remote workers comply with tax obligations. This collaboration will ensure smoother implementation and compliance.
- Provide tax incentives and support to participating companies registered in Kenya. The government may consider providing initial tax incentives or deductions for remote workers who comply promptly. Additionally, offer support services such as free tax advisory sessions to encourage compliance. Incentives can encourage early and voluntary compliance, while support services can help address any concerns or confusion among remote workers.
- Implement robust enforcement mechanisms. Develop robust mechanisms to monitor compliance and enforce tax regulations, including penalties for non-compliance. This could involve collaboration with international tax authorities to track income earned by remote workers. Effective enforcement ensures that the tax system is fair and that non-compliant individuals are held accountable, thus maintaining the integrity of the tax system.
- Encourage continuous feedback and improvement: Create channels for remote workers and firms to provide feedback on the new tax measures. Regularly review and adjust policies based on this feedback to address any issues or inefficiencies. Continuous improvement based on stakeholder feedback will help refine the process, making it more efficient and user-friendly over time.
Looking Ahead
By following the aforementioned strategic actions, the GoK can effectively enlist remote workers into the tax bracket, ensuring compliance with the Finance Act 2024 when it becomes law.
This approach balances clear communication, ease of compliance, incentives and robust enforcement to achieve the desired objective while supporting the growth of the remote work sector.
Additionally, it can implement the RWV by leveraging the available systems for online systems.
Implementing these recommendations will help achieve the government's objective while fostering a transparent, efficient and fair tax environment for remote workers and Kenyan organizations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.