Creatives win big as MPs scrap bill seeking to tax software distribution
By Victor Mukabi, June 27, 2025The National Assembly Departmental Committee on Finance and National Planning has scrapped a proposal in the Finance Bill which was seeking to have the distribution of software be subjected to income tax.
This comes as a relief to Kenya’s creative economy as the prices of getting legitimate software would have been distorted as a result of the distributors passing down the additional costs to the consumers.
Currently the software is already subjected to the royalty’s principles which provides for the rewarding of the originators who then pay taxes to the respective jurisdiction. Royalties as per the current Finance Bill means a payment made as a consideration for the use or the right to use any software, proprietary or off-the-shelf, whether in the form of license, development, training, maintenance or support fees.
In a statement to Parliament on Monday by the committee chairman Kimani Kuria (pictured) who also serves as Molo MP, the need to further tax the distribution was found to be an activity that does not generate any royalties hence the decision to scrap it.
“In considering the Bill, the Committee agrees with the stakeholders that the distribution of software does not constitute an activity that generates royalties,” Kuria said.He added: “In line with international best practices, the Committee therefore recommended the deletion of the phrase “and include distribution of the software.” If the Bill would have been passed, firms that are in the business of distributing the software would have been subjected to a 20 per cent withholding tax of the amount earned. The proposal had been indicated in the finance bill of 2025/26.
“Section 2 of the Income Tax Act is amended in paragraph (b) of the definition of “royalty”, by adding the words “and includes the distribution of software where regular payments are made for the use of the software through the distributor” immediately after the words “support fees”;” the draft bill reads in part. Typically, the creative economy interacts with software such as Adobe Premiere pro to edit videos, Adobe Audition for Audio Adobe illustrator and photoshop for design or even the different packages from Microsoft. Speaking during a previous engagement on matters finance bill, Daniel Murakaru a legal researcher at the Institute of Public Finance (IPF) had stated that this would have amounted to double taxation.
“So that one has been said to be against taxation or the principles that you have in taxation, especially because of double taxation. Because when you are distributing a particular software, you’re not necessarily exploiting the copyright,” he stated.