Intellectual property retention critical in cementing Kenya as a tech hub

Kenya has been touted to be a major hub for tech companies which are seeking to develop products and solutions that are fit for the African market.

The country is also home to many tech start up’s that are seeking to solve African problems by incorporating technology in their solutions. The current growth trajectory in this nascent industry presents the country with an opportunity to cement its position as a technology hub.

The availability of talent and access to affordable internet are some of the factors that have contributed to the rise of the country’s prominence in technology matters. The Government, on the other hand, set out a framework to develop what has been dubbed the Silicon Savannah and established Konza Technopolis.

Konza Technopolis is a flagship project under Kenya’s Vision 2030 economic development blueprint. It is seeking to become a world-class city that is powered by information, communications, and technology (ICT) which is supported by a superior and reliable infrastructure. It is meant to host major technology companies and other ancillary service providers.

Intangible property

The process of establishing intangible property involves various steps. This entails Development, Enhancement, Maintenance, Protection and Exploitation (DEMPE). DEMPE ensures that all parties who are involved in the process are properly allocated returns from the use of the intangible property based on the functions that they perform, the assets that they use and the risks that they assume in the process.

Intangible property is highly mobile. It is not uncommon to find start-ups and technology firms developing intangible property in Kenya and then transferring and registering the intangible property in the form of intellectual property rights in a legal entity that is based in another jurisdiction. The intellectual property is then rolled out for use in other jurisdictions within Africa and beyond. This implies that the returns from the use of the intellectual property across the various jurisdictions are paid to the registered owner either in the form of royalties or other forms of compensation.

Consequently, the country loses what would otherwise have been long-term revenue that would be critical in the Government’s efforts to plug perennial budget deficits. It also denies the country the much-needed foreign currency that would be paid by the user countries.

Public policy plays a critical role in promoting research and development (R&D). A mix of broad fiscal and targeted tax policies is critical in maintaining intangible assets that are developed in Kenya within the country. This will encourage investment in R&D and registration of the final products in the form of intangible assets in the country.

Currently, the prevailing tax law allows taxpayers to deduct expenditure which is incurred by a person for the purposes of a business carried on by him being expenditure of capital or non-capital nature on scientific research, a sum that is paid to a scientific research association approved by KRA as being an association which has as its object the undertaking of scientific research related to the class of business to which the business belongs.

The writer is an Associate Director at Ernst & Young LLP (EY). The views expressed herein are not necessarily those of EY.