The Revenue Act of the government of Kenya will raise its Digital Service Tax (DST) from 1.5% to 3%, saying it wants to boost domestic revenue and reduce the country’s fiscal deficit. The increased rates recommended by the Treasury Department in the country’s Finance Bill are expected to be approved by MPs. A little more than a year after the DST came into effect in Kenya, tech companies like Amazon, Uber, Spotify, and Netflix saw their prices rise because of the change.
The Institute of Certified Public Accountants of Kenya (ICPAK) has lauded the move saying the digital tax will enable the government to maximize tax on firms who have not been accounting for tax on services consumed across digital platforms.
“The move is in line with what the rest of the world is doing, most Western countries have an average rate of 3%. It Is fairly standardised and it’s aimed at mobilising more revenue from multinational companies who in the past have not been accounting for tax on services consumed on digital tax,” ICPAL committee member Mokaya Karaya said.
Digital Service Tax (DST) is payable on income derived or accrued in Kenya from services offered through a digital marketplace. This is payable by digital service providers (this includes residents and non-residents) operating in the digital marketplace in Kenya. They will be required to file a DST return and make payment for the tax due, on or before the 20th day of the following month that the digital service was offered.
In a given country, a tax is imposed on the gross transaction values of tech enterprises. Taxes for non-residents in Kenya, East Africa’s largest economy, must be paid if they “supply or enable the provision of a service for a user who is located in Kenya.” Services including video streaming and podcasts, subscription-based media such as news, digital markets, and downloads of digital content such as ebooks and films are all included in the country’s revenue authority’s definition of taxable services.
Data gathered on Kenyan users from places like internet markets can also be used for electronic data management services, electronic ticket ticketing, online distance learning, and the selling and licensing of such data. A tax representative must be appointed in Kenya for companies that do not have an office in the country and must file returns and pay taxes electronically.
As the Covid pandemic spread, so did the use of DSTs. The Paris-based Organization for Economic Co-operation and Development (OECD) worked to make sure countries could tax the profits of multinationals that had businesses in their countries.
Only four of the 140 OECD countries — Kenya (which had already implemented DST) and Nigeria – refused to sign on to a treaty that set a 15% minimum corporate tax rate for multinationals. The OECD has argued that the action will ensure that major multinationals pay their fair share of taxes in the countries where they operate.
