African countries are racing to enact rules for non-resident suppliers to account for taxes on electronically supplied services (ESS), a new report by PwC indicates.
- •Out of the 54 countries in Africa, 21 have already enacted the rules for non-resident suppliers to account for value added taxes or the goods and sales tax on electronically supplied services with five more countries (Botswana, Ethiopia, Mali, Republic of Congo and Rwanda) in the pipeline.
- •Some countries have also introduced a Digital Services Tax (DST) or a similar levy on the gross revenues derived by digital platforms and service providers from certain activities or transitions in their jurisdictions.
“As the digital economy continues to evolve, and as tax authorities continue to adjust to Africa’s remarkable digital transformation, it is essential for businesses to understand and closely monitor tax developments affecting the digital economy in every country where they supply digital services,” notes Job Kabochi, PwC Africa Indirect Tax Leader.
“Unfortunately, there is no uniform or harmonized approach to taxing the digital economy in Africa. Different tax policies in different countries reflect significant variations and complexities among the definitions, value thresholds and rates and requirements associated with registration, compliance and enforcement,” he notes.
The PwC VAT in Africa Digital Services report notes that tax authorities have taken notice of Africa’s growing digital economy. When digital activities and transactions take place within their jurisdictions or among residents of their jurisdictions, tax authorities have a vested interest in collecting the tax revenue due from these activities.
To that end, several countries in the continent have introduced or amended their Value Added Tax (VAT) or Goods and Sales Tax (GST) and other indirect tax laws and regulations to tax the digital economy by expanding the scope of taxation to cover electronic services supplied by non-resident providers to local consumers.
In Kenya, the VAT (Digital Marketplace Supplies) Regulations, 2020 (VAT DMS Regulations) came into effect in October 2020, subjecting non-residents supplying electronics services to Kenyan individuals to VAT. The regulations were effective from 1 April 2021.
“With effect from 1 July 2022, the Finance Act 2022 amended that VAT DMS Regulations by removing the distinction between business-to-business and Business to consumer. The change meant that recipients of business-to-business supplies from non-resident suppliers could no longer rely on the reverse charge mechanism for VAT compliance in Kenya,” notes PwC in the report.
“The changes mean that all non-resident suppliers of taxable services via a ‘digital marketplace’ must register for VAT in Kenya and charge VAT at the standard rate, currently 16%, on all relevant supplies. A digital market place being defined as an online platform that enables users to sell goods or provide services to other users.”
“The VAT Digital Marketplace Supply Regulations were later revoked and have now been replaced by VAT (Electronic, Internet and Digital Marketplace Supply) Regulations 2023 to take account of additional charges in relation to the taxation of supplies through a digital marketplace.”
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