DIGITAL DAMAGE

Online sales tax will punish Kenyan firms

In Summary

• The new digital sales tax of 1.5 percent on turnover  will take effect from January 1, 2020

• Kenya companies will not be able to avoid it but multinational companies will certainly dodge it

A man looks at mobile phones on Jumia site.
A man looks at mobile phones on Jumia site.
Image: FILE

The new digital sales tax is punitive. The KRA has confirmed that the 1.5 percent tax on turnover will take effect from January 1, 2020 (see P15).

Giant internet companies such as Google, Facebook, and Apple pay much less tax than most global companies. 

The EU has tried to impose a digital sales tax on their transactions but has so far failed to enforce it. It is just too difficult to pin down an online company which is probably domiciled offshore.

 

The KRA says that these big internet companies will have to appoint a local tax office in Kenya but will they comply? Even if they are blocked, Kenyans will still access their services through a VPN.

In the end, only Kenyan companies will pay the digital sales tax which is very unfair because they already pay sales tax (VAT) of 16 per cent.

The KRA says the tax can be offset against annual corporation tax but it will not be recoverable if the Kenyan digital company makes a loss.

So Kenyan companies will end up paying this digital tax and multinationals will avoid it. That will undermine efforts to build a digital economy in Kenya.

Quote of the day: "Violence can only be concealed by a lie, and the lie can only be maintained by violence."

Aleksandr Solzhenitsyn 
The Russian author won the Nobel Prize in literature on October 8, 1970.