Back in June 2020, President Kenyatta signed the Finance Bill 2020, which introduced amendments for statutes, among many other revisions, for The Income Tax Act, The Value Added Tax Act, 2013, The Excise Duty Act, 2015 and The Tax Procedures Act, 2015.
The Bill also saw the introduction of the Digital Service Tax. The law means that the gross transaction value of digital services will be subject to a 1.5 percent digital tax.
The tax will be payable from Jan 2021, by people whose income from the provision of services and products is sourced in the state through the digital marketplace.
The regulation further adds that for both Kenyans or non-residents with permanent establishments in the state, the tax will be available for offset against their income liability for that year.
The law has since received key and extensive insights, but for a quick recap, here are some of our thoughts:
The law now makes a provision for the Kenya Revenue Authority to appoint an agent for the purpose of collection and remittance of digital service tax. So basically, even if a company doesn’t have a local presence or isn’t registered locally KRA may appoint a tax agent to collect taxes from that entity
The digital economy is not only broad and ubiquitous but also quite intertwined with several players having a role in a single transaction. Industry players will have to work hand in hand with the regulator to clearly explain which point their obligations start and at which point they end.
Furthermore, it should be remembered that the management and the collection of the digital tax will be under a dedicated team, which will then monitor compliance with DST and the laws surrounding it.
The collection of the tax will be hinged on self-assessment – and the affected people and businesses will need to register.
And to the main element of this story: the KRA iTax system has been updated to reflect the introduction of DTS.
Of course, some issues have come up, including how loss-making IT-based companies will comply to the law.
There are also a ton of foreign digital companies operating in the Kenya space, and it is not clear if they will play ball, considering a trade deal between the US government and Kenya saw the superpower arm-twist the state about digital tax. Specifically, the US wants its firms exempted from DST.
Whether changes will be enforced to exempt American firms from the law before the January 2021 launch is something we will keep an eye on.