Kenya to introduce digital tax for online sales and services

Valentine Muhamba Avatar

Kenyan President Uhuru Kenyatta has approved the 2020 Financial Bill, this bill consists of proposed amendments to the:

  • The Income Tax Act
  • The Value Added Tax Act, 2013
  • The Excise Duty Act, 2015
  • The Tax Procedures Act, 2015.

The most notable part of this piece of legislation is the Digital Services Tax. The Kenyan government through this bill will impose a 1.5% tax on digital sales and services.

This will see all businesses pay tax on all income generated from the digital marketplace. A special unit of the Kenyan Revenue Authority (KRA) will be tasked with monitoring digital revenue.

Businesses that will be affected by this legislation

Any business offering the following will be subject to this law:

  • Downloadable digital content including downloading of mobile applications, e-books and movies
  • Subscription-based media including news, magazines, journals, streaming of TV shows and music, podcasts and online gaming;
  • Software programs including downloading of software, drivers, website filters and firewalls
  • Electronic data management including website hosting, online data warehousing, file-sharing and cloud storage services
  • Supply of music, films and games
  • Supply of search-engine and automated help desk services including supply of customized search-engine services
  • Tickets bought for live events, theatres, restaurants etc. purchased through the internet
  • Supply of distance teaching via pre-recorded medium or e-learning including supply of online courses and training
  • Supply of digital content for listening, viewing or playing on any audio, visual or digital media
  • Supply of services on online marketplaces that links the supplier to the recipient, including transport hailing platforms
  • Any other digital marketplace supply as may be determined by the Commissioner

This means companies like Uber, Google and Netflix will be subject to this tax in Kenya.

What are the reasons behind this?

There are two reasons behind this move. The first according to Vulture Burn is that companies like Facebook and Google generate a lot of revenue in Kenya, but they don’t pay any taxes.

These companies may not have premises they operate in Kenya so there is no obligation to pay taxes.

The second reason is that the Kenyan government due to the coronavirus pandemic implemented fiscal measures to help its people and businesses weather the storm:

  • Reduction of Personal Income Tax top rate (PAYE) from 30% to 25%
  • 100 % tax relief for persons earning up to 24 000 Kenyan shillings (US$225.51)
  • Reduction of Resident Corporate Income Tax rate from 30% to 25%
  • Reduction of Turnover Tax rate for SMEs from 3% to 1%
  • Reduction of VAT rate from 16% to 14%.
  • Suspension of all listing for all persons including companies at Credit Reference Bureau (CRB)

The Kenyan government put the above measures into place while looking for alternative revenue streams.

This law will come into effect in January 2021.

It will be interesting to see how the big tech companies respond to this bill.

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