Kenya’s Digital Service Tax takes effect in January 2021
The Income Tax (Digital Service Tax) Regulations 2020, which shall come into force on the 2nd January, 2021, have been gazetted.
This new tax will apply to such digital services as downloadable digital content, including mobile applications, e-books, and films.
Over-the-top streaming television shows, films, music, podcasts, and any form of digital content, will also be subject to this tax.
Digital tax will also be charged on subscription-based media, including news, magazines and journals, providers of a digital marketplace, and those who monetize data collected from users’ activities on a digital marketplace.
The new tax is also targeting firms or individuals offering website hosting, online data warehousing, file sharing, and cloud storage services.
Firms that engage in the online sale of tickets and IT firms that provide search engine services, and those offering online distance training will be subject to digital services tax.
The list of those exempted from digital tax includes online services that facilitate payments, lending, or trading of financial instruments, commodities, or foreign exchange, carried out by a licensed financial institution or financial services provider.
Online services provided by Government institutions will also be exempted.
Digital service tax will be imposed on the gross transaction value of the digital service, such as payments received as consideration for the services as well as commission or fees paid to the provider of a digital marketplace.
Excluded from the transaction value is Value Added Tax.
A non-resident person without a permanent establishment in Kenya, who provides a digital service to a user in Kenya, will be required to make an application to the Commissioner for Digital Tax Services.
“Any person(s) who fails to comply with provisions of these regulations shall be liable to the relevant penalties prescribed under the Tax Procedures Act, 2015,” said Ukur Yatani, National Treasury and Planning Cabinet Secretary, in the Special Gazette Notice published on December 2nd, 2020.
While the USA has opposed the imposition of digital tax on its companies operating abroad, most of the European Countries(EU) are in the process or have already introduced digital services tax. Across the EU, Spain was the first to introduce a tax on instant messaging services.