PROPOSED DIGITAL SERVICES TAX IN KENYA
The Kenyan Government has released the Finance Bill, 2020 (Finance Bill) which contains certain measures that may affect companies operating in the digital space within Kenya.
The existing position in Kenya requires non-residents to register and charge VAT for electronic services supplied to persons who are not registered for VAT in Kenya.
Electronic services include (among others) websites, webhosting services, remote maintenance of programs and equipment, software and updating of software, access to databases, self-education packages, music, films or games and political, cultural, artistic, sporting, scientific and other broadcasts and events including broadcast television provided or delivered on or through a telecommunications network.
While the Finance Act, 2019 (Finance Act) introduced provisions subjecting income earned or accrued via a digital market place to income tax and VAT, regulations setting out the detailed mechanism for the implementation of the provisions of the Finance Act that were to be issued by the Cabinet Secretary for Treasury have not yet been published.
The Finance Act defines a ‘digital market place’ as a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means. At this stage, the precise meaning of a digital market place and those who will be impacted by the digital tax is unclear.
Similarly, it is not yet clear how the provisions of the Finance Bill (detailed below) are intended to interact with the regulations that are to be published under the Finance Act.
The Finance Bill proposes to amend the Income Tax Act in order to:
- introduce a digital services tax payable at the time of the transfer of the payment for the service to the service provider at the rate of 1.5% of the gross transaction value. The tax will be chargeable on income from digital services accrued in or derived from Kenya through a digital market place. In respect of a resident person or a non-resident person with a permanent establishment in Kenya, the tax will represent an advance tax; and
- empower the Commissioner of Income Taxes at the Kenya Revenue Authority to appoint agents for the purpose of collection and remittance of the digital services tax.
These provisions only address income tax with no similar amendments currently proposed for VAT.
The proposed measures have an anticipated effective date of 1 January 2021.