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A tax law that took effect in December 2024 risks driving small traders off formal e-commerce platforms and back into informal markets, undermining the very revenue base it was designed to grow.
The warning comes even as e-commerce firm Jumia released a report showing rural areas now account for 60 per cent of its total orders, up from 54 per cent the previous year.
The report, the company’s second annual survey on e-commerce in rural Kenya, is backed by independent data showing the migration away from formal platforms was already underway before the law took effect.
Under the Tax Laws (Amendment) Act 2024, which President William Ruto signed on December 11, 2024 and which took effect on December 27, digital marketplace operators must deduct 5 per cent from payments made to resident sellers.
That is on top of the 1.5 per cent Turnover Tax that micro, small and medium enterprises (MSMEs) already pay and operate on slim margins to absorb.
Legal firm Bowmans noted that the provision, as drafted,, created regulatory ambiguity, particularly around non-resident platform operators, warning that two non-resident persons could end up subject to tax in Kenya simultaneously, a situation it said required clarification.
The concern is amplified by evidence that traders were already abandoning formal platforms before the new tax burden arrived.
Data from the Communications Authority of Kenya (CA) shows WhatsApp now accounts for 20.2 per cent of all order placements in Kenya, while dedicated mobile apps account for 44.8 per cent and traditional website portals just 12 per cent.
A separate study found that most MSMEs in Kenya and Ghana prefer selling via social media over dedicated e-commerce platforms, citing higher trust, flexibility and lower commissions.
The Jumia report argues that the law also creates a structural imbalance. Foreign platforms operating in Kenya without local registration or tax obligations face no equivalent deduction burden, while locally registered operators bear the full compliance cost.
“Applying withholding tax solely to resident platforms creates an uneven playing field, discouraging local innovation and investment,” the report noted.
Kenya’s e-commerce penetration stands at between 2 and 5 per cent of total retail sales, far below China’s 22 per cent and the United States’ 19 per cent, meaning the sector remains fragile enough for policy shocks to reverse momentum that has taken years to build.
Jumia Regional Chief Executive Officer for East Africa Vinod Goel said the sector had reached a tipping point.
“Rural areas are now at the forefront of this digital revolution,” said Goel.
The platform’s share of small and medium enterprise sellers rose from 40 to 60 per cent in 2025.
The company says it supports over 80,000 livelihoods, operates more than 300 pick-up stations and deploys over 26,000 community sales agents across Kenya.
The sector grows at between 16 and 18 per cent annually, with the report projecting rural internet and e-commerce penetration to exceed 60 per cent by 2027.
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A tax law that took effect in December 2024 risks driving small traders off formal e-commerce platforms and back into informal markets, undermining the very revenue base it was designed to grow.
The warning comes even as e-commerce firm Jumia released a report showing rural areas now account for 60 per cent of its total orders, up from 54 per cent the previous year.
The report, the company’s second annual
survey on e-commerce in rural Kenya
, is backed by independent data showing the migration away from formal platforms was already underway before the law took effect.
Under the Tax Laws (Amendment) Act 2024, which President William Ruto signed on December 11, 2024 and which took effect on December 27, digital marketplace operators must deduct 5 per cent from payments made to resident sellers.
That is on top of the 1.5 per cent Turnover Tax that micro, small and medium enterprises (MSMEs) already pay and operate on slim margins to absorb.
Legal firm Bowmans noted that the provision, as drafted,, created regulatory ambiguity, particularly around non-resident platform operators, warning that two non-resident persons could end up subject to tax in Kenya simultaneously, a situation it said required clarification.
The concern is amplified by evidence that traders were already abandoning formal platforms before the new tax burden arrived.
Data from the Communications Authority of Kenya (CA) shows WhatsApp now accounts for 20.2 per cent of all order placements in Kenya, while dedicated mobile apps account for 44.8 per cent and traditional website portals just 12 per cent.
A separate study found that most MSMEs in Kenya and Ghana prefer selling via social media over dedicated e-commerce platforms, citing higher trust, flexibility and lower commissions.
The Jumia report argues that the law also creates a structural imbalance. Foreign platforms operating in Kenya without local registration or tax obligations face no equivalent deduction burden, while locally registered operators bear the full compliance cost.
“Applying withholding tax solely to resident platforms creates an uneven playing field, discouraging local innovation and investment,” the report noted.
Kenya’s e-commerce penetration stands at between 2 and 5 per cent of total retail sales, far below China’s 22 per cent and the United States’ 19 per cent, meaning the sector remains fragile enough for policy shocks to reverse momentum that has taken years to build.
Jumia Regional Chief Executive Officer for East Africa Vinod Goel said the sector had reached a tipping point.
“Rural areas are now at the forefront of this digital revolution,” said Goel.
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The platform’s share of small and medium enterprise sellers rose from 40 to 60 per cent in 2025.
The company says it supports over 80,000 livelihoods, operates more than 300 pick-up stations and deploys over 26,000 community sales agents across Kenya.
The sector grows at between 16 and 18 per cent annually, with the report projecting rural internet and e-commerce penetration to exceed 60 per cent by 2027.
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By David Njaaga