Digital Service Tax takes effect amid implementation concerns
Kenya Revenue Authority (KRA) has announced that the newly introduced Digital Service Tax (DST) came into effect on January 1.
The Finance Act 2020 introduced DST on income from services provided through the digital marketplace in Kenya and will be applied at 1.5 percent on the gross transaction value (exclusive of VAT).
“The Finance Act 2020 introduced a new tax known as Digital Service Tax (DST) effective 1st January 2021. DST is charged at 1.5% of the gross transaction value and shall be payable by a person whose income from service is derived from or accrues in Kenya through a digital market place,” KRA said in a statement.
It added that the tax shall be due at the time of transfer of payment for the service to the service provider.
One will be subject to DST if one provides or facilitates provision of a service to a user who is located in Kenya.
With the introduction of the DST under the Finance Act 2020, key stakeholders have been eagerly waiting to see KRA would implement it.
There have been various concerns about the exact scope of the transactions that fall under the ambit of new tax and the mechanism through which KRA would collect and administer it.
According to KRA, for residents and companies with a permanent establishment in Kenya, the DST will be offset against the income taxes due in the year of income.
For non-residents and companies without a permanent establishment in Kenya, DST will be a final tax.
The regulations have elaborated the array of transactions taking place on digital platforms that attract the tax.
These include downloadable digital content such as e-books, films, mobile applications, subscription-based media such as newspapers, over-the-top content such as streaming services, music, games, e-tickets for concerts and restaurants, transport-hailing services and any other digital market place service providers.
This definition is quite broad and seems to capture service providers that were previously unsure whether Digital Services Tax would apply to their services such as taxi-hailing apps.
This move will have the likes of Netflix, HBO, Amazon Prime among others included in the tax regime in the country, many of whom signed to provide services to Kenyans and had not registered for VAT.
One aspect of the law is that the government will restrict these firms from the Kenyan market if they fail to comply with the regulations.
“A person who fails to comply with the provisions of these Regulations shall, in addition to the penalties prescribed under the Act, be liable to restriction of access to the digital marketplace in Kenya until such obligations are fulfilled,” the new law reads in part.
The National Treasury also wants intermediaries who supply digital products on behalf of suppliers be required to charge and account for the VAT on such supplies whether such other person is registered for VAT or not.
The gazettement of the regulations breathes life into digital tax in Kenya, placing it among the countries that are ramping up efforts to collect tax in the e-commerce space.