Excise duty on internet doubles to Sh9 billion

In the wake of Starlink's entry into the Kenyan market in July 2023, local data providers revamped their packages to remain competitive.

Safaricom, the top player in the fixed internet market, raised its bandwidth for subscribers in September 2023 for the first time in years, contributing to the growth in speeds. Several other regional providers also increased their speeds to retain their clientele.

This is the highest increase in excise duty collected from internet data, and comes at a time when the rate was reduced through the Finance Act 2023 from 20 to 15 percent, enabling major internet service providers like Safaricom and Wananchi Group, which operates Zuku, to also increase speeds to compete with Starlink without raising prices.

Starlink is a satellite internet service provider developed by SpaceX, the private space company founded by Musk, the world's richest person.

“Reducing the rate would have played a part. It probably encouraged greater usage,” said Nikhil Hira, a partner at Kody Africa LLP.

Mr Hira added that owing to competition from Starlink, “more people may have upgraded to get the higher speeds at the same cost” as local players responded to the new satellite rival.

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Data from the Communication Authority (CA) shows that online activities such as streaming movies, online learning, remote work, and others accelerated “demand for high-speed internet, leading to increased uptake of higher generation mobile technologies as is the case of 4G and 5G” in the second quarter of 2024.

In the review period, mobile data subscriptions grew by 3.2 percent to 56.1 million, of which 78.4 percent were on mobile broadband, CA said.

Excise duty, commonly known as a sin tax because it has traditionally been used to discourage harmful behaviour like drinking and smoking, was first introduced in October 2018 through the Finance Act, 2018, which amended the Excise Duty Act, 2015.

This legislation imposed a 15 percent excise duty on telephone and internet data services as the government sought to increase tax revenues from the increased online activities.

Three years later, as the internet boom intensified with the country-wide roll out of Safaricom Home Fibre, the duty was increased to 20 percent, sparking fear that it would discourage the country’s digital innovation.

The rate was then reverted to 15 percent before the Treasury attempted to increase it back to 20 percent in the Finance Bill 2024 which was finally rejected following the violent anti-tax tax protests in June.

Lower excise rates, and higher speeds, seem to have increased internet use by Kenyans, resulting in higher revenue by the Kenya Revenue Authority.

Former Treasury cabinet secretary Njuguna Ndung’u had earlier argued in a policy brief he co-authored in August 2019 that increasing excise duty on mobile phone airtime and financial transactions may not expand the tax base.

“A higher tax rate on low-level retail electronic transactions mostly levied on low-income earners that are sensitive to transaction costs may discourage the use of mobile phone-based transactions, incentivising them to revert to cash transactions to evade taxes and so less tax revenue,” said Prof Ndung’u.

Since the KNBS started disclosing collection of excise duty on internet data in 2020, there has been a steady growth in the tax collected peaking to 104 percent last year, the Economic Survey 2025 shows.

Collection in 2021 increased by 21 percent from Sh3.19 billion the previous year. In 2022, collection increased by 20.4 percent to Sh3.84 billion, before slowing down to 14.6 percent in 2023.

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