DIGITAL TAX

Kenyans to pay more for online taxi, streaming sites

The Covid-19 pandemic accelerated the paradigm shift on the digital space as people stayed at home and surfed more

In Summary
  • The 1.5 per cent tax on income generated through digital transactions to be paid by the business will increase their cost of operation.
  • Online services have been growing quick and fast in the country as mobile and internet penetration also grows.
Netflix logo
Netflix logo
Image: courtesy

Kenyans will have to dig deeper in their pockets to get online services after the digital service tax(DST) took effect from January 1 2021.

The 1.5 per cent tax on income generated through digital transactions to be paid by the business will increase their cost of operation, which will in turn trickle down to the consumer.

Online services have been growing quick and fast in the country as mobile and internet penetration also grows.

Internet subscriptions in Kenya rose about 5.1 percent between April and June 2020 as demand for the service surged amid stay-at-home measures due to the pandemic.

Subscriptions increased to 40.9 million in the quarter ending June from 38.9 million in the period ending March, data from the Communication Authority of Kenya shows.

From online taxi-hailing platforms to streaming sites and subscription-based digital newspapers there will be an increase in cost as the firms such as Uber, Netflix will be expected to pay tax for services rendered and paid for.

“The DST is charged at 1.5 per cent of the gross transaction value and shall be payable by a person whose income from service is derived from or accrues in Kenya through a digital market place,” the Kenya Revenue Authority said in a statement.

The tax shall be due at the time of transfer of payment for the service to the service provider.

For non-residents and companies without a permanent establishment in Kenya, the Digital Service Tax will be a final tax

The Covid-19 pandemic accelerated the paradigm shift on the digital space as people stayed at home and surfed more.

The evolution of the digital market place, took centre stage during the tax summit organised by the Kenya Revenue Authority (KRA) last November.

Participants at the t summit drawn from various parts of the world, unanimously noted that there is a need for the tax administrations to adjust to this reality by identifying and implementing a modern tax collection mechanism that aligns to online business models.

Digitisation experts and researchers predicted that by 2021, the digital marketplace would account for more than 40 per cent of the online retail market.

The introduction of DST establishes a level playing ground for all business, hence promotes equity.

Apart from levelling the ground for businesses, DST will also expand the tax base to a significant extent. KRA projects to collect more than Sh5 billion in the first six months of implementation of this new tax head.