The Kenya Revenue Authority (KRA) is inviting members of the public to comment on the 1.5% Digital Tax. The public has until August 24 to submit their comments to the Commissioner-General for review.
The Digital tax will take effect on January 1, 2021, requiring individuals and businesses that derive income from services through a digital market place to pay a 1.5% tax on the gross value of the transaction. The new digital tax will require online businesses to charge and account for Value Added Tax for sales on their e-commerce platforms.
Further, the tax will require online businesses who do not have a presence in Kenya to employ local tax representatives who will remit their tax obligations. The digital tax is a final tax on non-resident individuals and corporate bodies, and on the other hand, residents will offset the charge against their corporate tax.
Digital Tax Among Changes Expected to Expand Tax Base.
The new digital tax, among others, is an attempt to expand KRA’s tax base, and thus rake in more tax revenue. According to the Commissioner of Domestic Taxes at KRA, “the digital service tax is intended to address the change in transactional models as well as expand the tax base.”
Loss-making businesses now also have to pay taxes, after the introduction of a Minimum Tax. The charge, in line with the Finance Act of 2020, requires all incorporated companies to pay 1% tax on gross turnover.
The Finance Act also made changes on VAT laws, removing VAT exemptions on inflatable tires, stoves, cookers, and specialized solar and wind energy equipment.
It also introduces an Import Declaration Fee, charging goods worth over KSh 10,000 imported under the EAC Duty Remission Scheme a 1.5% tax on customs value. IDF also removes exemptions on goods worth over KSh 200 million earlier exempted on the grounds of public interest.
KRA will raise the ceiling for residential Rental Income tax from Ksh 10 million a year to Ksh 15m as well as raise the floor from Ksh 144,000 to Ksh 288,000 annually.
The digital tax, minimum tax and changes on residential income tax will take effect on January 1, 2021.