Want to shop online? Prepare to pay 16 per cent VAT

Kenyans will pay 16 per cent more on goods and services bought over the Internet as the government introduces value added tax on e-commerce businesses.

This is part of the taxman’s efforts to increase revenue collection and bridge the Sh600 billion budget deficit on the back of record high public debt.

During his budget speech, National Treasury Cabinet Secretary Henry Rotich hinted that the government will introduce new tax measures that will capture the value of transactions in the rapidly growing e-commerce sector.

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“The digital economy is fast-evolving, thereby posing challenges to taxation,” Rotich said. 

The Treasury has now proposed that the taxes be collected through the introduction of a 16 per cent VAT on goods and services transacted over digital platforms.

“For the avoidance of doubt, income chargeable to tax includes income accruing through a digital market place,” states the Finance Bill 2019 in part. “Digital marketplace means a platform that enables, by electronic means, direct interaction between buyers and sellers of goods and services.”

This entails both large e-commerce sites such as Safaricom’s Masoko and Jumia, as well as smaller enterprises that use platforms such as Facebook and Instagram to sell their products and services. Kenya’s e-commerce sector has recorded increased uptake in recent years fuelled by affordable devices and mobile data.

Analysts however believe the country’s e-commerce sector is in its nascent stages and poised for take off in the coming years. A report by Citibank earlier this year projected Kenya’s e-commerce market could be worth between Sh70 and 120 billion in the short to medium term.

It, however, remains unclear how the KRA will administer the VAT on e-commerce transactions.

This will particularly be complicated for the taxman given that majority of payments made for online purchases are done on mobile phones. Communication Authority of Kenya (CAK) industry statistics indicate mobile commerce transactions increased by 11 per cent to 587 million in the three months ended December 2018.

“There were 586.9 million mobile commerce transactions which were valued at Sh1.8 trillion while the value of person-to-person transfers amounted to Sh731.9 billion,” explained the CA in part.

KRA’s biggest dilemma will thus entail differentiating between transactions originating and terminating entirely over a “digital market place” and those of products that have already been charged VAT offline but are traded online. 

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Online ShoppingTaxesHenry Rotich