FINANCE BILL 2021

Treasury expands taxation net for digital incomes

The growth of online services in the country saw KRA introduce the tax head to collect revenue from the digital marketplace

In Summary
  • Income earned through internet and electronic work will cover Youtubers, bloggers, online teaching, online marketing  among others.
  • In a bid to expand it's revenues, the government in the finance bill 2021 , expanded the terms “digital market place” and “digital service”.
Treasury Cabinet Secretary Ukur Yatani outside Pariament Buildings on June 11.
TREASURY MANAGER: Treasury Cabinet Secretary Ukur Yatani outside Pariament Buildings on June 11.
Image: EZEKIEL AMING'A

Income derived through internet and electronic network will now be taxed if Parliament passes the Finance Bill 2021 as proposed.

This is after National Treasury expanded the scope of the digital service tax to include income from Youtubers, bloggers, online teaching, online marketing among others.

The Finance Act, 2020 which introduced the digital service tax only covered income earned through the digital market place and mainly targeted foreign entities operating in Kenya.

National Treasury Cabinet Secretary Ukur Yattani in his 2021/22 budget statement said this proposal was introduced after the government established that the current tax provisions did not cover all traders who use the digital service platform to transact their businesses.

In a bid to expand it's revenues, the government in the Finance Bill 2021 , expanded the terms “digital market place” and “digital service” to be able to collect more taxes from the online space.

The bill defines “digital market place” as “an online platform which enables users to sell or provide services, goods or other property to other users.”

While “digital service” is defined “a business carried out over the internet or an electronic network including through a digital marketplace.

Examples of digital services include games, e-books, cloud-based software, websites, and streaming music.

Digital marketplaces include online shopping sites such as Aliexpress, streaming platforms such as Netflix, ride hailing platforms such as Uber.

The effect of the DST charged at 1.5 per cent tax on income generated through digital transactions had started being felt by Kenyans accessing online services.

Services such as Netflix and Uber have adjusted their prices upwards as they try to factor in the cost of the tax.

In the Finance Bill 2021, Yattani also amended the Tax Procedures Act to empower the Kenya Revenue Authority seek intervention of other Agencies to facilitate compliance with the provisions of the digital service tax.

This comes as various complexities and ambiguities had been seen as KRA sought to implement the tax.

Tax experts in April urged the tax policymakers to make the necessary amendments to ensure that the digital service tax is easily adopted with minimal adverse impact to businesses, given the challenges currently facing taxpayers.

If the finance bill 2021 is passed by parliament, the DST could also only be payable by non-resident persons doing online sales to Kenyans.

The growth of online services  in the country saw KRA introduce the tax head to collect revenue from the digital marketplace.

Lillian Kubebea, Deloitte East Africa Tax Partner says that we are expected to see  see a lot of focus on regulations for the expanding digital marketplace to get more revenue from the sector

According to KRA, the DST establishes a level playing ground for all business and also expands the tax base to a significant extent.

According to Fred Omondi, Deloitte East Africa tax leader, DST is still developing and a lot will become refined in practice.

Parliament is expected to make amendments and approve the proposals in the Finance Bill 2021 by June 30 2021.