ONLINE TRADE

KRA sets ground to tax digital businesses

All online transactions to be taxed

In Summary

•The National Treasury CS Ukur Yattani has published the regulations which will help the taxman go after online businesses.

•Popular digital content and service providers such as Google, Amazon, Jumia and Netflix will be affected.

An employee assists a customer to set-up M-Pesa money transfer service on his handset inside a mobile phone care centre in Nairobi./FILE
An employee assists a customer to set-up M-Pesa money transfer service on his handset inside a mobile phone care centre in Nairobi./FILE

The government will soon start taxing online businesses once the Value Added Tax (Digital Marketplace supply) Regulations, 2020 is in place.

 

The National Treasury CS Ukur Yattani has published the regulations which will help the taxman go after online businesses.

Digital marketplace supply is defined as any supply of a service made over a platform that enables the direct interaction between buyers and sellers of services through electronic means.

 
 

It targets both domestic and international market places doing business with individuals or entities in Kenya.

Taxable supplies made through a digital marketplace shall include electronic services, downloadable digital content including downloading of mobile applications, e-books and movies.

Subscription-based media including news, magazines, journals, streaming of TV shows and music, podcasts and online gaming will also be taxed.

Software programs including downloading software, drivers, website filters and firewalls will attract a levy.

Tickets bought for live events, theaters, restaurants purchased through the internet, the supply of digital content, transport hailing platforms and any other digital marketplace supply, as may be determined by the Commissioner KRA, will be taxed.

 

This means popular digital content and service providers such as Google, Amazon, Jumia and Netflix will be affected.

Taxi-hailing apps such as Uber, Bolt and Taxify will also be on the taxman's bracket once the regulations come into effect.

 
 

The regulations follow the amendments to the VAT Act, 2013 by the Finance Act, 2019, clarifying that VAT is applicable to supplies made through a digital marketplace.

“To ensure wide consultation and public participation, the Kenya Revenue Authority invites sector players, tax professionals and members of the public to submit their comments on the draft regulations,” Commissioner General, James Mburu, says in a public notice.

Under the new tax law, companies that offer digital services in the country will be required to register for VAT or appoint a tax representative before being allowed to operate.

A digital marketplace supplier under these regulations who is from an export country shall be required to register under the simplified VAT registration framework,” CS Yattani says in the draft.

Where an intermediary whose place of business is in Kenya makes a digital marketplace supply on behalf of a person, the intermediary shall be required to charge and account for the VAT.

The government is going for digital businesses in the wake of growth in financial inclusion through use of mobile money services.

During the second quarter of the Financial year 2019/20, the number of active registered mobile money subscriptions stood at 28.9 million and the number of active mobile money agents stood at 205,328, Communication Authority data shows.

The value of the business to business transfers totaled Sh859.6 billion. Consumers transferred Sh294 billion to businesses while businesses to consumers transferred a total of Sh377.4 billion.

Notably, use of mobile money platform for payment of bills has evolved over the quarters,” CA notes in its report.

The latest developments come as the coronavirus continues to ravage the economy, with KRA expected to miss its revenue target for the financial year 2019/20 on depressed business activities.

Revenue collections in April fell to Sh120.1 billion, Treasury Data shows, compared to Sh140.4 billion collected in a similar period last year.

Sectors hard-hit include tourism and hospitality, horticulture, transport, manufacturing and SMEs.

The digital tax however does not come as a surprise as the Finance Bill 2020 introduced a 1.5 per cent digital tax policy on the value of online transactions.

KRA has been keen to expand the tax bracket to meet its targets and help reduce the country's budget deficit, which has seen the government borrow heavily to meet its obligations mainly on development where the country has a budget of Sh3.02 trillion.

In the current financial year, KRA had been given a target (revised) of Sh1.7 trillion.

In February, it implemented the the Excise Goods Management System (EGMS) on bottled water, juices, energy drinks, soda and other non-alcoholic beverages to seal revenue leaks and capture more taxes from businesses.

The authority has also been targeting the informal sector wanting to bring it on board the tax band.

The government collected Sh1.58 trillion in revenue for the financial year ended June 2019 , an increase compared to Sh1.435 trillion collected in financial year 2017/18.

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