The Government has moved to extract more revenues from the transactions taking place in every corner of the nascent digital economy.
New value-added tax (VAT) regulations published by National Treasury Cabinet Secretary Ukur Yatani target 10 fast-growing online transactions that will hit the pockets of thousands of Kenyans that have moved to online business.
Mr Yatani plans to go after downloadable digital content including mobile applications, e-books and films as part of the government’s wider goal of expanding the tax base.
The digital tax rate has been set at 1.5 per cent.
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In his budget speech on June 11, Yatani noted that with the fast advancement in technology, many business transactions are increasingly being carried out on digital platforms.
“In some cases, due to the nature of the transactions, it is difficult to effectively tax the income derived through such platforms,” he said.
Other online transactions that will be slapped with the digital tax include subscription-based media including news, magazines and journals.
Over-the-top services including streaming television shows such as Netflix and Showmax, films, music, podcasts and any form of digital content will also be within the radar of Kenya Revenue Authority (KRA).
Software programmes including drivers, website filters and firewalls; electronic data management including website hosting, online data warehousing, file-sharing and cloud storage services are also in the net.
Music, and games search engine and automated helpdesk services including customisable search engine services will also constitute a new revenue stream for the government.
In addition, netizens will also pay taxes for the tickets they buy online for live events, theatres or restaurants.
And with Covid-19 moving people towards online learning, the Government is also targeting distance teaching through pre-recorded media or e-learning including online courses and training.
Other low-hanging fruits for a revenue-hungry government include digital content for listening, viewing or playing on any audio, visual or digital media services that link the supplier to the recipient including transport hailing services or platforms.
In September last year, KRA kicked off the search for a technology service provider to install a monitoring and payments system that would track and audit transactions between both local and international merchants and their customers online.
“In a bid to enhance tax compliance in the Kenya digital economy, KRA seeks to acquire an innovative tax collection service for digital platforms with a presence in Kenya,” said the taxman in a call for bids.
The Government seems to be relying on a broad description of digital economic activities that does not distinguish between large e-commerce players such as Amazon or Safaricom’s Masoko, and small individuals selling clothes on Facebook and Instagram.
Treasury proposed the introduction of taxes on digital economic activities in the Finance Bill, 2019 as one of the means of increasing revenue collection.
Last year, a senior World Bank official said it was not only difficult to evaluate the value of economic activities online, but that it might also discourage the budding digital economy.
Casey Turgusson, the senior digital development specialist at the World Bank Group, said as much as getting taxes from a digital business was critical in expanding the tax base, it would not be a walk in the park for KRA.
“When you have a startup, the accounting system of looking at that business is quite different to a traditional business. Often times you are running a loss for a number of years to gain market share before you could actually gain the profits that could be taxed,” he said.
KRA says it will be collecting just a small withholding tax from digital platforms as a means to weaning them into tax compliance.
In the regulations, a business that is required to account for the VAT on taxable supplies made on a digital marketplace shall notify the supplier from the export country that the supplier is not required to account for the tax in Kenya for the supply.