Kenya has seen tremendous growth in ICT in the last few years. With the rising levels of internet penetration, the country has seen a rise in electronic commerce. In the wise words of Albert Einsten “it has become appallingly obvious that our technology has exceeded our humanity”. Most companies and individuals have opted to choose a different path of online transaction. For instance, there has been steady increase of consumer retail purchases from companies such as Jumia Kenya, Kilimall Kenya, Masoko and other international companies such as E-bay and Amazon.
In addition, Mobile Money in Kenya has redefined the way businesses operate. In fact, the growth in mobile money transfer services has been exponential. The taxation of the sector is not in harmony with this growth. The new modes of businesses have poised taxation challenges not only in Kenya, but internationally as well. Like most of the jurisdictions, there is a need to cap tax avoidance so as to widen the tax base and generate more revenue for sustainability. It is in this regard that Kenya Revenue Authority saw a need to tax the digital market. The tax simply implies that any income derived in Kenya through transactions across a digital market place shall be subject to tax. A digital marketplace is a platform enabling direct interaction between buyers and sellers of goods and services via electronic means.
The Finance Act 2020 introduced Digital Service Tax (DST) as a tax that is payable on income derived or accrued in Kenya from services offered through a digital market place. DST is payable at 1.5% of the gross transaction value and is due at the time of transfer of the payment for the service to the service provider. For residents and companies with a Permanent Establishment (PE) in Kenya, the DST will be an advance tax to be offset against the income taxes due in the course of the financial year. In the case of non-residents and companies without a Permanent Establishment in the country, the Digital Services Tax will be a final tax.
The world economy has shifted from brick and mortar and in the age of digital evolution traditional taxation concepts, will no longer apply. Digital Taxation has to be adopted to take into account the changing nature of undertaking business in a virtually borderless world.
By Phanice Munandi
KRA Tax Education