The Kenya Revenue Authority (KRA) is considering introducing a 1.5 percent digital tax on the value of online transactions according to proposals contained in the Finance Bill 2020.
This is part of the tax collector’s strategies in broadening its tax base by introducing taxes on the emerging digital economy.
Section 4 of the Finance Act amends the Income Tax Act to include ‘income accruing through a digital marketplace’ as taxable income.
12E. (1) Notwithstanding any other provision of this Act, a tax to be known as digital service tax shall be payable by a person whose income from services is derived from or accrues in Kenya through a digital market place:
Provided that a resident person or non-resident person with a permanent establishment in Kenya shall offset the digital service tax (DST) paid against the tax payable for that year of income.
(2) The tax payable under subsection (1) shall be due at the time of the transfer of the payment for the service to the service provider.
Under the DST, it means whether a business is making losses, the tax must be paid and it is bound to lead to double taxation in relation to how the digital market place operates.
The proposals will be presented to the National Assembly for a first reading on Wednesday.
Nikhil Hira, Regional Rep Eastern Africa Association. Director Bowman’s Coulson Harney LLP in a Tweet commented that “This whole area of digital tax has not been thought through.”
However, analysts are of the view that KRA then, meant to show that those operating within the digital economy were tax liable. Now, they are more specific.
Globally, the Organisation for Economic Cooperation and Development (OECD) provides a harmonised position on digital taxes.
According to its, OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), proposes to allocate the primary right to tax to the country from which the digital revenue generates rather than the country in which the investment is made.
According to Bowman’s Coulson Harney LLP, “The regulations for the new tax provisions will be key in understanding how the tax will be imposed on digital marketplaces in Kenya, its operational workings and its effect. Our view is that these regulations should align with the broader government policy on the digital economy, international best practice, and data protection laws to ensure a smooth implementation.”
Further, PKF Kenya, an accountants and business advisers firm, says taxation of such trade is complicated and requires modern tax laws and tools such as the common reporting standards to create fair and equitable taxation across various territorial jurisdictional taxation.