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Kenya sets guidelines for online business tax

Kenya , 10 Jun 2020

The Kenya Revenue Authority (KRA) has presented a draft bill to enforce Value-Added Tax (VAT) on digital businesses.

The Authority claims businesses such as Netflix, Google and other Over the Top (OTT) service providers generate revenue through Kenya, but do not have a physical presence.

The draft document titled The Value Added Tax (Digital Marketplace Supply) Regulations, 2020, will see digital businesses being charged VAT.

An excerpt from the document reads: “Value Added Tax shall be charged on taxable services supplied in Kenya through digital marketplace. 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; Supply of music, films and games.”

It added that “digital marketplace supply shall be deemed to have been made in Kenya where the billing or home address or access proxy including Internet Proxy address, mobile country code of SIM card of the recipient is in Kenya.”

The exchequer has been seeking ways to bridge budget deficits and it has been working on ways to increase its tax income, targeting the growing online space.

During a recent webinar focused on taxing the Kenyan digital economy, Lena Achieng, Assistant Manager Corporate Policy Division at KRA said: “Globalisation and business advancements have enables businesses to be conducted differently. We have business operating in jurisdictions without even having a presence there. In view of this, tax authorities just not in Kenya, had to rethink the taxation framework for these new business models.”

With the Finance Bill 2019, the government had attempted to introduce the digital tax, but faced opposition from players like Google.

Achieng said that the KRA is still consulting stakeholders to have favourable tax guidelines for all international players. Although the Bill was ratified, there is still no clear guidelines regarding tax for online businesses.

During the same webinar Wilfred Alambo, a tax consultant with KPMG Kenya, cautioned that the KRA should approach the taxation issues “soberly” to avoid ignoring the value that digital services offer the country’s economy.

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