HISIBATI CONSULTING | CPA David Ndiritu Mwangi – 2020

TAXATION OF THE DIGITAL ECONOMY IN KENYA

Background
Over the last few years there has been a growing consensus among policy makers, academics and businesses
that the international tax system has been outpaced by globalization and the growth and scale of multinational
enterprise.
In the European Union, the European Parliament resolution of 16 December 2015 called for legislative
proposals adjusting the definition of 'permanent establishment' to grasp the digital presence and introducing a
definition of 'minimum economic substance'.
India was the first country to introduce digital tax called ‘Equalization Levy’ in 2016 at the rate of 6%. EL
1.0 was payable by Indian residents on online advertisement services purchased from non-resident companies.
From 1 April 2020, the scope of equalization levy has been expanded to include 2% levy on all online sale of
goods or services into India by non-resident e-commerce operators.
In Kenya, digital tax was introduced into our tax laws through Finance Act 2019.
Parliament enacted the Finance Act 2020 which introduced a Digital Services Tax with effect from 1 January
2021 which is payable by persons whose income from the provision of services is derived from or accrues in
Kenya through a digital market place.
The tax measures introduced simply highlighted that income derived in Kenya through transactions across a
digital marketplace shall be subject to income tax and value-added tax (VAT)
A “digital marketplace” is defined as a platform enabling direct interaction between buyers and sellers of
goods and services via electronic means.
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DIGITAL SERVICE TAX (INCOME TAX)
Scope of Taxable Services
The digital services upon which the DST shall apply
will include the following:
Streaming and downloadable services of digital content
such as movies, videos, music, applications, online
games and e-books;
Transmission of data collected about users which has
been generated from such users’ activities on a digital
marketplace, however monetized;
Provision of a digital marketplace, website or other
online applications that link buyers and sellers;
Subscription-based media including news, magazines
and journals;
Electronic data management including website hosting,
online data warehousing, file-sharing and cloud storage
services;
Supply of search-engine and automated helpdesk
services including supply of customized search engine
services;
Tickets bought for live events, theatres, restaurants etc.
purchased through the internet; and online distance
teaching via pre-recorded medium or eLearning,
including online courses.
Any other service provided or delivered through an
online digital or electronic platform but excluding
services that are subject to withholding tax as
prescribed by the Income Tax Act.
“The services of a licensed financial service
provider carrying out online services which
facilitate payments, lending, or trading of
financial instruments, commodities or
foreign exchange shall not be digital services
for the purposes of these Regulations.”
CONSULTING
Determination of User Location
A person shall be subject to digital service tax if the
person provides or facilitates provision of a service to a
user who is located in Kenya.
A user of a digital service shall be deemed to be
located in Kenya if any of the following parameters are
present -
The user accesses the digital interface from a
terminal (computer, tablet or mobile phone)
located in Kenya;
Payment for the digital services is made using
a credit or debit facility provided by any
financial institution or company in Kenya;
Digital services are acquired using an internet
protocol address registered in Kenya or an
international mobile phone country code
assigned to Kenya;
The user has business, residential or billing
address in Kenya.
Tax determining value
The digital service tax shall be imposed on the gross
transaction value of the service which shall be; -
(a) in the case of a digital service provider, the
payment received as consideration for the services; and
(b) in the case of a digital marketplace provider, the
commission or fee paid for the use of the platform.
The transaction value of the service shall not
include Value Added Tax charged for the service.
The digital services tax will be charged at a rate
of 1.5% of the gross transaction value
 Accounting and Payment
The Regulations provide that payment of the tax shall be the liability of the digital service provider or any
person that collects the payments for digital services and shall be due and payable at the time of the transfer
of the payment for the service to the service provider. Non-residents may appoint tax representatives in Kenya
who shall be responsible for remitting the digital service tax to the Kenya Revenue Authority.

Digital Service Tax Agents Returns

The revenue authority will appoint tax agents who Digital tax agents will make a return indicating the
shall deduct, account and remit the digital service tax value of transactions and the tax remitted by the
to the Commissioner through a digital service tax twentieth day of the month following the end of the
collection service month that the digital service was offered.

Record Keeping Offences and Penalties

The person deducting DST is required to keep A person who fails to comply with DST regulations
records for at least 5 years may be barred from accessing the digital market
place until all such obligations are met.

“Effective date :
the Regulations become effective from
01/01/2020”

Is DST a final tax? Subscription based media including news, magazine and
journals;
For resident and permanent establishment companies,
DST will be an advance tax that will be offset against Over the top services including streaming television
income tax. I will be a final tax for non-residents without shows, films, music, podcast and any other digital
a permanent establishment in Kenya content;

Software programmes which include software, drivers,

VALUE ADDED TAX (DIGITAL website, filters and firewalls;
MARKETPLACE SUPPLY)
Electronic data management including website hosting,
The Value Added Tax (Digital Marketplace Supply)
online data warehousing, file sharing and cloud storage
Regulations, 2020 were gazette through Legal Notice
services;
No. 190 of 2020 dated 25 September 2020.
Music and games;
Scope of Taxable SuppliesThe Regulations
define the following supplies as taxable supplies at the Search engine and automated help desk services
digital market place: including customizable search engine services;

Downloadable digital content including mobile Tickets for live events, theatres and restaurants;
applications, e-books and films;
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Distance teaching through pre-recorded media or e- Is in Kenya;
learning including online courses and training; Makes payment for the services through a bank
\
Digital content for listening, viewing or playing on The payment for the services is authorized in
audio, visual or digital media; Kenya

Services that link the supplier to the recipient including Time of Supply
transport hailing services;
The transactions will be accounted for the earliest of:
Electronic services under section 8(3) of the VAT Act
2013 ((a) websites, web-hosting, or remote The date the payment for the supply was
maintenance of programs and equipment; (b) received whether in whole or in part; or
software and the updating of software; (c) The date of the invoice or receipt issued.
images, text, and information; (d) access to
databases; (e) self-education packages; (f) music,
films, and games, including games of chance; or
Conclusion
(g) political, cultural, artistic, sporting, scientific
and other broadcasts and events including Registered providers will need to determine if their
broadcast television.) customer is consuming the services in Kenya. They
may rely on the following factors to determine this
Any other service that is provided through a digital place of supply:
market place and is not exempt under the Act.
Postal address
Registration Credit card or bank transfer details
IP address
All digital suppliers are required to comply with these Mobile SIM card country code
regulations not later than 25th February 2021. A person
who fails to comply with these regulations shall be
liable for penalties under the VAT Act or the Tax
Procedures Act. Non-Residents businesses will be
required to register for VAT with KRA or appoint tax
representatives to account for VAT on their behalf.

Eligibility
The regulations are applicable to Non-residents digital
service providers who provide digital services to final
consumers in Kenya i.e. B2C transactions. B2B
transactions are not eligible.

Eligible transactions are where the recipient of the

service:

Website: Contact: Email:

www.hisibati-consulting .com 0721 949 580 dndiritu@hisibaticonsulting.com