PwC pokes holes in implementation of KRA’s digital tax

Audit and consultancy firm PwC Kenya has pointed out ambiguities in the application of the digital service tax (DST) that came into effect on January 1, 2020.

It is charged at 1.5 per cent from income generated digitally by businesses. It seeks to boost Kenya Revenue Authority (KRA) collections from the digital space.

Targeted businesses include online delivery services and streaming platforms such as Netflix and YouTube.

PwC said emerging issues on compliance range from registration to payment, which are yet to be configured in the iTax platform. It noted that non-resident entities subject to the DST only have the option to register in their own capacity.

In case of any non-compliance, the directors will be held accountable.

“PwC view is that DST is applicable if there is an existence of a digital marketplace, generation of income from the provision of services through a digital marketplace and provision of digital services to a user located in Kenya, IP address, a debit or credit card located in Kenya,” noted the firm in a statement.

The tax is a prerequisite of value-added tax registration for digital marketplace supplies with entities that aren’t subject to DST being required to register.

“This may lead to administrative complexities and unnecessary queries from KRA,” it says.

PwC Manager and Corporate Tax Specialist Nicholas Kahiro said though the law targeted non-resident compliance, it has affected residents as well.  PwC argues DST returns are configured on iTax as a payment return, and not a monthly (return).

“The legal ambiguities include KRA’s general position that all services provided electronically are subject to DST even if no digital market place exists with KRA issuing DST notifications and demanding DST without fully understanding the business operating models,” noted PwC.