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KRA goes after digital economy to boost collection

Even as KRA goes after online market players, the Finance Bill 2019 has yet to be signed into law.

In Summary

•KPMG in its proposal to the National Assembly Finance committee said in most digital transactions, it is difficult to determine where value is created

•The Finance Bill, 2019 proposes to amend the Income Tax Act by introducing a new provision that now lists income accruing through a digital marketplace as income chargeable to tax in Kenya.

A kilimall shopping site
A kilimall shopping site
Image: COURTESY

The Kenya Revenue Authority has given online market players seven days to file and remit all outstanding tax returns due, in increased efforts to meet its annual collection target.

“Our records show that you are a player in the Digital Economy and you have never filed your returns nor paid the relevant taxes,” an email received by one of the online vendors shows.

“For purposes of being tax compliant, you are required to file all outstanding returns due and pay all the relevant taxes within seven (7) days of this communication,” KRA stated.

 

The taxman has been up in arms to net players in the digital economy to help meet revenue targets, a move that has been projected by some as a shot in the foot.

Consulting firm-KPMG in its proposal to the National Assembly Finance committee said in most digital transactions, it is difficult to determine where value is created, as most digital firms do not have a physical presence in the countries of operation.

“How do you tax someone you don't know where they are doing their business from," said Peter Kinuthia, Partner Tax and Regulatory Services at KPMG.

He said people are making international orders online from their bedrooms. and there is  need to define the digital market and how they will be taxed otherwise the regulation will be difficult to implement.

The Finance Bill, 2019 proposes to amend the Income Tax Act by introducing a new provision that now lists income accruing through a digital marketplace as income chargeable to tax in Kenya.

The proposed amendment is aimed at ensuring income earned or transactions taking place on digital platforms will be taxed in accordance with the law and after taking into account the values generated locally.

This comes in the wake of a global outcry and increased efforts to tax the digital economy.

 

Tax payers in the digital economy are now required to file and pay Pay-As-You-Earn (PAYE), Value Added Tax (VAT), Excise Duty as well as Corporation Tax for income accruing from gains or profits from any business, employment or services rendered via the E-commerce industry.

With rising levels of internet penetration, there has been a steady increase in the number of online transactions.

Consumer retail purchases from companies such as Jumia Kenya, Kilimall Kenya, Rupu and other international companies such as E-bay and Amazon have since increased.

“As technological innovations have experienced exponential growth over the past two decades, regulation has constantly played catch-up, leading to unfortunate instances of regulation stifling innovation,” IDB managing director Karen Kandie said.

Even as KRA goes after online market players, the Finance Bill 2019 has yet to be signed into law. 

The tax authority has already entered into international partnerships that would see it appoint tax representatives abroad to assist it with collecting revenues for companies resident there.

According to KRA deputy commissioner in charge of Policy Maurice Orei, firms that digitally operate in Kenya but have physical office addresses outside KRA's jurisdiction will be taxed through an appointed tax representative.

"All the companies even PayPal, Facebook, Twitter and others will now remit their revenues to our representatives in the countries where they are domiciled for onward remittance to us to help the government fund its projects," Orei said.