Is It Fair to Tax the Digital Hustle? Rethinking the 2025 Finance Bill's Move on Digital Marketplaces

The 2025 Finance Bill targets online marketplaces but does digital work really cause the kind of harm excise duty is meant for?

Kenya, home to the world’s fourth-fastest-growing digital economy, has become a key technology hub in Africa. This growth has been fueled by expanding internet penetration, a young and tech-savvy population, and rising demand for flexible income opportunities. From freelance writers and virtual assistants to content creators and ride-hailing drivers, many young Kenyans have turned to digital work, often called the “digital hustle” as a primary or supplementary source of income.

However, the government’s proposal in the 2025 Finance Bill to expand the scope of excise duty to include digital marketplaces raises important economic questions: Is it justified to apply excise tax to online work? And more critically, does the digital marketplace generate the kind of societal harm that excise taxes are meant to address?

The median age of Kenyans remains remarkably low at 20 years, underscoring its vibrant and youthful economic landscape. This signals not only a vibrant and dynamic economy, but also brings with it major policy challenges, particularly high youth unemployment. As the job market struggles to absorb the growing labor force, many young people have embraced digital platforms such as Ajira and social media as alternative sources of income. These technology-driven solutions have created new avenues for employment and entrepreneurship outside traditional sectors.

The “digital hustle” typically involves using online tools and platforms to earn income through side gigs or digital ventures. This includes freelancing, online product sales, content creation, virtual support services, and more. As of 2022, it was estimated that 1.9 million Kenyans are engaged in digital labor or digitally enabled jobs. Thanks to increased internet access, these platforms have made it easier for Kenyans to connect with customers, reduce the cost of doing business, and access new markets often with little initial capital.

The 2025 Finance Bill introduces a significant amendment to Section 2 of the Excise Duty Act (CAP 472), expanding the definition of a “digital marketplace” to include any online platform that allows users to sell goods or offer services to other users. Additionally, under Section 13(2), the Bill proposes to make services provided over the internet particularly by non-resident entities subject to excise duty. In effect, the law now captures websites, apps, or online services used for peer-to-peer sales, freelancing, or business transactions.

While the move appears to be aimed at increasing tax revenue from the growing digital economy, it prompts an important question: Is excise duty the right type of tax for this context?

What Is Excise Duty and When Is It Applied?

Excise duty is traditionally applied to goods and services that generate negative externalities meaning, activities that impose unaccounted-for costs on society. Common examples include alcohol, tobacco, petroleum products, and sugary drinks. These products are subjected to this form of consumption tax to account for their social or environmental costs like public health burdens or environmental pollution and to discourage their excessive consumption.

Therefore, in principle an excise tax is not simply a revenue-raising tool, but a corrective instrument used to respond to harmful products or behaviors. It’s designed to change consumption patterns and offset the broader costs these products create for society.

Is the Digital Marketplace Harmful?

Applying this framework to the digital economy, leads to the question: Does online work or digital commerce generate social harm or costs to justify the imposition of an excise tax? For the most part, the answer is no. On the contrary, Kenya’s digital platforms have expanded economic opportunity, especially among youth. Freelancers, YouTubers, online vendors, and digital drivers are filling income gaps left by the formal labor market. These platforms promote innovation, employment, cost-efficiency, and financial inclusion and not societal harm.

Admittedly, concerns do exist. Critics point out that the gig economy can encourage insecure work with little social protection. Others raise valid issues around data privacy, algorithmic bias, or unregulated content. But these are not negative externalities in the traditional sense. They are better addressed through labor regulation, data protection laws, and platform governance and not through excise taxation.

More importantly, none of these concerns equate to the kinds of public health or environmental burdens associated with products like tobacco or pollution from petroleum fuel. The digital marketplace does not pose a direct social harm that excise tax is meant to correct.

Given this understanding, the proposal to apply excise duty to digital platforms appears misaligned with the core purpose of the tax itself. Excise taxes are blunt tools, they raise costs and discourage use. Applying such a tax to a sector the government actively promotes through digital literacy programs, youth employment initiatives, and e-commerce policy frameworks sends a confusing and contradictory message and undermines coherence of taxation policy.

Additionally, it could also reduce voluntary tax compliance, pushing more digital workers into the unregulated informal sector, where oversight and revenue collection are even harder.

If the goal is to broaden the tax base and ensure fairness, Kenya already has better tools in place: The Digital Service Tax (DST) under the Income Tax Act, Value Added Tax (VAT) for online services, and simplified self-assessment income tax regimes for digital workers. These instruments are more precise, adaptable, and economically sound than excise duty.

Some may argue that it’s unfair for offline businesses to pay taxes while digital workers do not. And they have a point since tax equity is essential. Every income earner, whether they work offline or online, should contribute to applicable taxes. But equity should be achieved through smart, proportionate, and transparent taxation and not by applying the wrong tool to a category of income earners

Moreover, digital workers already face hidden costs: irregular income, high platform fees, lack of health insurance or pension coverage, and limited legal protections. Adding an excise tax risks further penalizing people who are simply trying to make a living through innovative means.

Conclusion.

There’s no doubt that Kenya needs to modernize its tax system to reflect the realities of a digital and global economy. But taxing online work through duty reflects a fundamental misunderstanding of both the tax instrument and the digital economy itself. Instead of treating online work to this form of irrational taxation, the government should acknowledge it as a growing source of employment and productivity that deserves support, structure, tax treatment and clear regulation.

If there are genuine concerns about unfair competition, lost tax revenue, or accountability, they should be addressed through better-targeted digital tax policies, improved enforcement, and simplified registration processes but not through excise taxes designed for harmful goods. Kenya’s young, innovative population deserves a policy environment that supports, rather than punishes, their hustle.

By Vivian Ocholla