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Kenya's digital tax comes into effect as online commerce grows

Kenya , 06 Jan 2021

Kenya’s Digital Service Tax (DST) has come into effect amid impressive m-commerce and internet growth over the last three months.

Fuelled by the COVID-19 pandemic, digital businesses have benefited from the focus on mobile money payments.

The government is looking to take advantage of this growth via DST.

In a statement this week, the Kenya Revenue Authority (KRA) outlined the application of this tax to digital enterprises.

“DST is charged at 1.5% of the gross transaction value and shall be payable by a person whose income from service is derived from or accrues in Kenya through a digital market place. The tax shall be due at the time of transfer of payment for the service to the service provider,” the statement read.

“For residents and companies with a permanent establishment in Kenya, the DST will be offset against the income taxes due in the year of income. For non-residents and companies without a permanent establishment in Kenya, DST will be a final tax,” the Authority added.

It is not clear how the exchequer aims to force compliance and the organisation has only stated that they will work with banks, credit card companies and mobile money services to retrieve transactional information.

International companies such as Google, Amazon, Netflix and many more that offer services to Kenya, are targeted its implementation.

According to a statement from law firm Ong’anya Ombo: “The Regulation expounds on Place of Supply as whereby the recipient of the supply is in Kenya.”

It added: “To determine whether the recipient is in Kenya, Kenya Revenue Authority (KRA) will consider whether the payment proxy including credit card or debit 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 address, mobile country code of the SIM card of the recipient is in Kenya.”

KRA targets to collect at least Kshs 5-billion by June 2021 through the DST.

According to the most recent quarterly report from the Communication Authority, for the period July – September 2020, consumer to business (C2B) payments through mobile money grew 64% to a tune of Kshs735-billion.

Internet subscription grew by 4.8% to 43.5 million, from 41.5 million subscriptions reported last quarter.

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