This archive report was first published on 13 September 2019.
As the Fourth Industrial Revolution takes hold, online businesses and digital transactions are on the rise in Kenya. However, this shift has also created a significant challenge for tax collection, with billions of shillings worth of transactions going untaxed.
According to the Communications Authority of Kenya, the e-commerce industry is estimated to be worth Sh4.3 billion, while the total Bitcoin transactions in Kenya are valued at over Sh150 billion, as reported by the Blockchain Association of Kenya.
Online businesses often operate without physical addresses or legal structures in the jurisdictions they operate in, making it difficult for the taxman to track their transactions. This has led to concerns about tax avoidance and evasion, which are seen as major factors slowing down economic growth.
Kenya is not alone in this challenge, with countries such as South Africa, India, Philippines, Israel, Japan, Thailand, and France also grappling with taxation issues related to digital transactions.
Fortunately, there are legal foundations for addressing this issue. Section 3 of the Income Tax Act, for instance, imposes tax on all incomes of a person, whether resident or non-resident, which are accrued in or derived from Kenya.
Similarly, sections 5 and 8 of the VAT Act, 2013 impose value added tax on electronic services delivered to a person in Kenya. The Finance Bill 2019 also proposes tax amendments for incomes or supplies on the digital marketplace.
It is estimated that by 2070, almost every business will be conducted online, with the use of 5G internet, big data, Internet of Things, blockchain, and digital currencies becoming the norm. In this interconnected world, it is only fair that the Kenya Revenue Authority (KRA) starts preparing Kenyans for the future of taxation.
By working together, KRA and the ministries of Information, Communication and Technology and National Treasury can ensure proper registration of online investments and address the taxation challenges posed by digital transactions.
