Kenya Introduces Digital Tax for Online Sales

Kenyan President Uhuru Kenyatta has approved the 2020 Finance Bill, proposing amendments to multiple statutes including the Income Tax Act, the Value Added Tax Act of 2013, the Excise Duty Act of 2015 and the Tax Procedures Act of 2015.

The most notable aspect of the approval of this new bill is the foundation of the Digital Services Tax. This new bill will see the introduction of a digital tax at 1.5% the gross value of any online transaction.

Taxing online transactions

What this means is that people whose income is from the “provision of services and products” sourced through the digital marketplace will have to pay the tax. What’s more, the digital service tax will be payable at the time of transfer of payment to service providers.

It is expected that businesses working on the digital marketplace as well as e-commerce companies in Kenya will all be eligible to pay the tax. Further, the law states that in the case of Kenyans or non-residents with permanent establishments in the state, the tax will be available for offset against their income liability for the same year.

According to the act, a “digital marketplace” is defined as “a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means”.

In terms of draft of the bill, the scope of taxable entities includes:

• Mobile applications, e-books, and movies
• E-learning, including the supply of online courses and training
• Supply of digital content for listening, viewing or playing on any audio, visual, or digital media
• Supply of search-engine and automated helpdesk services
• Software, drivers, website filters and firewalls
• Website hosting, online data warehousing, file-sharing and cloud storage services

Amongst many more. This means that companies like Google and Netflix are up for taxation in Kenya.

When the bill was proposed, even loss-making entities were to be tasked to remit tax based on their sales and all companies would also be liable to a minimum gross sales tax of 1%.

The new law comes into effect from January 2021.

Why enforce a digital tax?

According to VentureBurn, large digital companies like Google and Facebook generate vast amounts of revenue from Kenya and yet pay no taxes. Several online businesses, both in and out of Kenya, do not remit VAT for their transactions, as well.

Since these companies have no real physical addresses or structures, it is easy to skip out on taxation.

Kenya’s fight against COVID-19

According to TechWeez, these changes to the country’s financing were proposed alongside additional measures against COVID-19 in March 2020. Kenya currently has over 6000 confirmed cases.

The measures are believed aid in cushioning Kenyans from the economic blow from the pandemic that continues to crush markets and production sectors in Africa and around the world.