Kenya’s plans to tax digital services could hit a brick wall following its negotiations for a free trade deal with the US.
The US has publicly set some tough conditions for Kenya including introducing a third party, Israel. The US insists that Kenya must support Israel’s political and commercial interests or forget about the FTA.
It also says that Kenya should discourage actions that prejudice or discourage business between the US and Israel.
“Kenya must not tax digital products like e-books or music, and Nairobi must include no provisions that require US firms operating to store data locally”an excerpt from the East African says.
Kenya announced in the 2020/2021 budget that it would start taxing digital transactions as from January next year. The Draft Value Added Tax (Digital Market Supply) Regulations 2020 outlines the scope of services and online transactions subject to the proposed 1.5 percent tax.
“To ensure that the digital market sector pays their fair share of taxes, KRA has set up a dedicated unit to facilitate the taxpayers in this sector in the determination and accounting for taxes,” Deputy Commissioner in charge of policy and domestic taxes, Caxton Masudi said when KRA set up a special digital taxation unit in August.
“We intend to use transaction tracers through data-driven detection in taxing multinationals as we roll out taxes on digital businesses.”
The digital tax is targeting revenues from Technology firms that market or sell their products online.
The 1.5 levy was imposed on the value of digital transactions although the Kenya Revenue Authority (KRA) acknowledged that some online transactions might be difficult to track and tax effectively.
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.
Among the targeted companies for digital tax include American corporations such as Google, Uber and Netflix, which have a wide market in the country.