The Digital Service Tax (DST) will come into effect on January 1, 2021, the Kenya Revenue Authority (KRA) has announced.
The digital tax set at 1.5 per cent of the gross transaction value is targeting revenues from technology firms and individuals who market or sell their products or services online.
Introduction of Digital Service Tax (DST)
Payable by a person who derives or accrues income from services through a digital market place at the rate of 1.5% of the gross transaction value. @KRACare
Effective Date: 1st January 2021. #FinanceAct2020
— Kenya Revenue Authority (@KRACorporate) August 6, 2020
The taxman has already set up a special unit that will be tasked with tracking revenues from digital businesses.
The new unit is expected to facilitate tax payment from the previously unmanaged sector, as part of measures to boost revenue collection in the depressed economy.
“We intend to use transaction tracers through data-driven detection in taxing multinationals as we roll out taxes on digital businesses, ” Deputy Commissioner in charge of policy and domestic taxes, Caxton Masudi said in June.
The 1.5 per cent levy was imposed on the value of digital transactions although KRA acknowledged that some online transactions might be difficult to track and tax effectively.
Most of the targeted companies operate without a physical address in Kenya but command a large presence in the digital market. This includes companies such as Google and Netflix.
KRA is also targeting Kenyans who shop for their goods and services online in line with the published draft Value Added Tax (Digital Marketplace Supply) Regulations 2020.
The taxable digital content includes downloadable products such as mobile applications, movies and subscription-based media, e-books, journals, magazines, new, streaming of TV shows, streaming of music, podcasts, and online gaming.
KRA noted that the criteria that would make the services taxable include payment using a Kenyan credit or debit card or using mobile money transfer and delivery to an IP address within the country.
The tax is contained in a Finance Act, 2020, that was assented into law by President Uhuru Kenyatta on June 30.
Besides, the Digital Service Tax (DST), the Residential Rental Income Tax is also set to come into force in January next year.
“The upper threshold has been increased from Ksh10 million per annum to Ksh15 million. The lower threshold has been increased from Ksh144,000 per annum to Ksh288,000, ” said KRA.