The New Year is here with us, and a lot of us are filled with hope and ambition. For those in digital business spaces, this is a chance to expand our horizons and broaden our achievements. Fortunately or unfortunately for us, the Digital Service Tax has recently been launched in Kenya.
As of January 1st, 2021, Digital Service Tax (DST) is payable on income derived or accrued in Kenya from services offered through a digital marketplace. As with all new things, the question on everybody’s mind is what does this mean for us? What is a digital marketplace? Who is liable to pay this tax? Is it beneficial in any way to the person being taxed?
Well, to start off, a digital marketplace, according to Kenya Revenue Authority (KRA), is a platform that enables direct interaction between buyers and sellers of goods and services through electronic means.
It comes as a shock that the internet has been around in Kenya for almost 26 years, and yet now is when this form of taxation has been introduced. Well to answer this, now more than ever before, it is possible to completely operate your company or business without the need for a physical location..
The recent introduction of the Digital Service Tax has bred a lot of controversy among Kenyans. Are we as a country ready for it? Do people generate enough income online to a point where they should be subjected to Digital taxes? What do we as Kenyans have to gain from the Digital Service Tax?
The persons liable to this form of tax are Digital service providers, Digital marketplace providers, or their appointed tax representatives (in the case of non-residents digital service providers or digital marketplace providers without a permanent establishment in Kenya).
Business To Business Transactions and Business To Consumer Transactions, Digital Services, Social Media Influencers, Individuals making money from streaming videos or music content, anyone offering online courses and entrepreneurs with e-commerce sites are expected to pay Digital Service Tax.
Let’s not forget that DST applies to foreign digital service providers as well. Perhaps this seems more beneficial and would make the most sense to us. Let’s look at the impact of DST on foreign online businesses. In this digital era, companies are able to completely operate online, meaning they have been able to generate loads of income without being subject to any form of tax. Such occurrences have made foreigners take advantage.
For example, companies have been seen to generate income from Kenyan users, book them in countries with low tax rates & end up paying minimal taxes in Kenya despite generating the income here. In such instances, Kenya is the loser. For example, if users in Kenya click on ads on YouTube, income is generated and yet YouTube doesn’t pay taxes to the Kenyan government. This translates to a loss of revenue to Kenya because the company has in actual sense generated this income in Kenya. Until a consensus is reached between countries on the implementation of such taxes, this loss will be there. But before this consensus is reached, the Digital Service Tax has been introduced.
It’s not just in Kenya. Many countries have seen developments and complete implementation of Digital Service Tax. Countries such as Austria, Belgium, Czech Republic, France, Hungary, Italy, Poland, Slovenia, Spain, and The United Kingdom (UK) have proposed, announced, or already implemented some sort of DST.
How does DST apply to the consumer? Although this form of taxation is fully for the service provider, it translates to an increase in the prices of the goods for online businesses to cater to the tax. Most businesses, if not all, will push this tax to the consumer. So yes, a business person or not, you will be affected by the DST either directly or indirectly.
Whatever the case, we as Kenyans are left with no choice but to wait and see how the new Digital Service Tax system will unveil itself. We can only hope that Kenyans will in one way or the other reap some benefits out of this new form of taxation.