The government is very ready to tax the digital economy
The emergence of the digital economy with very intangible business models has become one of the biggest problems stressing the taxman that wants to increase its tax base revenue from anything and everything taking place within its boundaries. Governments across the world are always coming up with new laws and regulations aimed at ensuring all businesses pay their fair share of taxes. There are so many jurisdictional loopholes that the Kenyan government has not been able to seal in order to impose taxes on the digital market place largely because of its complexities especially global firms like Netflix. With the National Treasury seeking to hit 6.1 trillion Kenya shillings tax base by 2021, the fast-rising digital economy will obviously be one of the channels to prey in order to achieve this.
The Finance Act, 2019 effected on November 7 2019 tasked the Cabinet Secretary of the National Treasury with the role of setting these taxing modalities. Well, the CS Mr. Ukur Yattani has now published a draft to introduce changes to the Income Tax and VAT to subject goods and services supplied in the digital marketplace to taxes. Income accruing through a digital marketplace is now taxable while the Value Added Tax is to be charged on income made through sales of products and services on the digital marketplace.
The digital marketplace has been defined as a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means. So this means a subscription to online-based services, news magazines, streaming of television shows, music, and podcasts will now be the subject of value-added tax (VAT). If it receives the President’s signature, which certainly will, the following digital services will be affected:
- Downloadable digital content, including mobile apps, e-books, and films.
- Subscription-based media, including journals, magazines news, streaming services (Netflix, Showmax, etc.), as well as podcasts, online gaming, and music platforms like Spotify.
- Software programs including drivers, website filters, and firewalls.
- Electronic data management including web hosting, online data warehousing, file sharing, and cloud storage services.
- Supply of music, films, and games.
- Supply of search-engine and automated helpdesk services including supply of customized search-engine services.
- Tickets purchased for live events, exhibitions, conferences, theatres, lodges and restaurants purchased through the internet.
- Supply of distance teaching via pre-recorded medium or e-learning services including online courses and training.
- Supply of digital content for listening, viewing, or playing or any audio, visual or digital media.
- Supply of services on online marketplaces that links the supplier to the recipient, including transport hailing platforms like Uber, SWVL, and Bolt.
- Any other digital marketplace supply as may be determined by the KRA Commissioner.
Consumers will be expected to meet the new tax charges while the suppliers of these digital services will be required to submit a record of all the supplies made to all consumers in Kenya indicating the value of supplies and VAT deducted, failure to will attract penalties including restrictions to the access of the local digital market place. The Kenya Revenue Authority taxes should be filed monthly via iTax, on or before the 20th of the following month.
Kenya will now join the list of many other developed countries that have either announced, proposed, or implemented a digital services tax on online streaming media services. The announcement and the proposal are what we have seen. It will be interesting to watch how the implementation will be rolled in the coming months.