Back in 2013, the Value Added Tax Act was introduced. It is a piece of legislation that governs the taxation of goods and services in Kenya. The act established a value-added tax (VAT) system, which is a consumption tax that is levied on the value added to goods and services at each stage of production and distribution. In 2020, a digital/electronic component was introduced to the Act.
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The digital element of the law included specific regulations that apply to electronic, internet, and digital marketplace supplies. These regulations were introduced to address the challenges posed by the digital economy. They provided guidance on how to determine whether a supply is made over the internet or through a digital marketplace, as well as how to calculate the amount of VAT owed on such supplies.
Now, another change has been suggested in what is called VAT (Electronic, Internet, and Digital Marketplace Supply) Regulations, 2023.
The 2023 Regulations aim to expand the scope of digital VAT in line with President Ruto’s Government commitment to expanding the tax base. Although there are not many fundamental differences between the 2023 and 2020 Regulations, there are a few additions that taxpayers should be aware of.
The 2023 Regulations have clarified that digital VAT includes supplies made over the internet, an electronic network, or any digital marketplace. This clarification serves to widen the scope and make it clear that all relevant electronically supplied goods and services fall under these regulations.
“Taxable supplies made over the internet, an electronic network or through any digital marketplace include facilitation of online payments or exchange of digital assets excluding services exempt in the Act,” reads the proposal.
Specifically, the 2023 amendments have expanded the tax net by introducing additional categories of taxable supplies. These new categories include the monetization of data generated from users’ activities and the facilitation of online payments and transfers of digital assets (excluding exempted services under the Act).
However, the definition of digital assets has not been provided in the 2023 Act, leaving it open to interpretation. Local publication Business Daily has since hinted that crypto exchanges could fall under the definition.
Remember, this is just a proposal that has to be approved by Parliament before being put into practice. We will update you once this development has been made.