Kenya to Tax Digital Services From Netflix, Google, Uber in New Proposals

Kenya to Tax Digital Service Providers

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If passed into law, the Kenya Revenue Authority (KRA) will begin collecting tax from online taxi-hailing platforms, streaming sites, or any other digital marketplace supplier in their proposed Value Added Tax Regulations.

According to KRA, firms like Uber Technologies Inc, Google parent Alphabet Inc and Netflix Inc are expected to register for value-added tax or appoint a tax representative before they can operate, going forward. 

“Upon registration, the applicant shall be issued with a Personal Identification Number for the purpose of filing and payment of VAT accrued on digital marketplace supplies,” a section of the proposed regulations read.

Areas that KRA is eyeing to add into their cart include Downloadable digital content including downloading of mobile applications, e-books, and movies; Subscription-based media including news, magazines, journals, streaming of TV shows and music, podcasts and online gaming.

Software programs including downloading of software, drivers, website filters, and firewalls.

Electronic data management including website 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 bought for live events, theaters, restaurants purchased through the internet.

Supply of distance teaching via pre-recorded medium or e-learning including the supply of online courses and training.  Supply of digital content for listening, viewing, or playing on any audio, visual or digital media.

IP Address is to be recognized as a point of delivery or origination

“A digital marketplace supply shall be deemed to have been made in Kenya where one, the recipient of the supply is in Kenya;  the payment proxy including credit card information and bank account details of the recipient of the digital supplies is in Kenya; or the residence proxy including the billing or home address or access proxy including Internet Proxy address, mobile country code of SIM card of the recipient is in Kenya,” says KRA.

The tax collector says should the firms fail to do so, the providers risk restriction of access to the Kenyan market.

“A person who fails to comply with the provisions of these Regulations shall, in addition to the penalties prescribed under the Act, be liable to restriction of access to the digital marketplace in Kenya until such obligations are fulfilled.”

Kenya currently has a 1.5 percent digital tax policy on the value of online transactions, as provided in its Finance Bill 2020. 

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“While the intention of the provision appears to be to bring into the Kenya tax net non-residents that operate digital marketplaces, the provision is restricted to apps that ‘derive and accrue’ such income from Kenya. Given that most non-residents arguably do not derive nor accrue their income from Kenya (as contrasted to sourcing their income from Kenya), the drafting may potentially result in legal disputes as to its applicability to non-resident digital marketplaces,” comments PwC,  in their Tax and Regulatory Alert Highlights of the Finance Bill, 2020.

“It is noted that Kenya is part of the OECD Mutual Inclusive Framework that is currently discussing the issue of taxation of digital services business. The introduction in Kenya of the digital services tax appears to have pre-empted the outcome of those discussions. It is also noted that digital services tax may represent a significant obstacle to the start of any discussions between Kenya and the US in respect of the anticipated Free Trade Agreement,” they add.

Robert Yawe, Managing Director of Synaptech Solutions Limited, an ICT company dedicated to providing infrastructure visibility for data centres in a Tweet commented that “Your IP address is now recognized as a location in Kenya so any transaction to do from that “location” it is deemed to have happened in Kenya thus subject to local taxes.”

Ben Roberts, chief executive officer and group director of network strategy at Liquid Telecom described the move as “Insanity”.

The Finance Bill, 2020 was published on 5 May 2020. The Bill introduces tax amendments additional to those contained in the recently assented Tax Laws Amendment Act, 2020.

The Bill proposes to amend the following Laws: Income Tax Act (ITA), Value Added Tax (VAT) Act, Excise Duty Act, Tax Procedures Act (TPA), Tax Appeals Tribunal Act (TAT), the Miscellaneous Fees and Levies Act, 2016, Public Road Tolls Act, Capital Markets Act, Standards Act, Retirement Benefits Act and Insurance Act.