This archive report was first published on 11 June 2020.
On Thursday, the National Treasury unveiled a digital tax, a Value Added Tax (VAT) on e-commerce services in Kenya, primarily targeting consumers who will have to pay more for online goods and services. The move aims to tap into the growing e-commerce sector in the country.
According to Treasury CS Ukur Yatani, the Digital Marketplace Supply Regulations, 2020, will see online transactions attract a 1.5 percent digital tax. This means popular streaming services like Netflix, HBO, and Amazon Prime will be included in the tax regime, even if they haven't registered for VAT.
The regulations introduce new obligations that may disrupt operations for both local and international companies. One aspect of the draft is that the government will restrict these firms from the Kenyan market if they fail to comply with the regulations.
“A person who fails to comply with the provisions of these Regulations shall, in addition to the penalties prescribed under the Act, be liable to restriction of access to the digital marketplace in Kenya until such obligations are fulfilled,” the regulations state.
The taxman defines digital suppliers as service providers who are either registered for VAT in Kenya, receive payments via credit cards, and bank accounts registered in Kenya from Kenyans, or those who supply digital products for billing/home addresses in Kenya.
The new law is based on the Value Added Tax Act, 2013, which set a 16 percent rate. This rate was revised to 14 percent in April this year following the outbreak of the coronavirus pandemic.
The proposals will also apply to digital news subscription-based media content, including news, magazines, journals, streaming of TV shows and music, podcasts, and online gaming. Notable suppliers who enjoy massive readership in the country include Wall Street Journal, Bloomberg, and the New York Times.
The Treasury also wants intermediaries who supply digital products on behalf of suppliers to be required to charge and account for the VAT on such supplies, regardless of whether the other person is registered for VAT or not.
The VAT proposals come in the wake of a new digital services tax introduced by the National Treasury, which is expected to come into effect this financial year.
