KRA To Tax Online Business Transactions

KRA To Tax Online Business Transactions

By Victor Orandi

On 30th June 2020, the President assented to the Finance Act 2020, which among several other amendments, introduced a Digital Service Tax (DST). The DST is payable by a person whose income, from the provision of services, is generated from or accrues in Kenya through a digital market place.

The Cabinet Secretary for the National Treasury and Planning on 9th October 2020 gazetted and published the Value Added Tax (Digital Marketplace Supply) Regulations, 2020 (The Regulations) which shall actualize the provisions of the Finance Act 2020 on DST. Digital marketplace is defined as a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means.

The Regulations target both local and international market platforms doing business with individuals or companies in Kenya. The taxable supplies made through the digital marketplace include downloadable mobile applications, e-books, films, subscription services such as streamed television shows, music or any other form of digital content.

Digital content such as Google, Jumia and other online transactional platforms will be affected by these Regulations. Taxi services such Bolt and Uber will also form part of the taxable supplies.

A person supplying the taxable services is required to register for DST in Kenya if the supplies are made by a person or entity in Kenya or from a foreign country to a recipient in Kenya and the payment for the services is made to the supplier in the foreign country from a payment system authorized in Kenya.

The rate of DST is set at 1.5 per cent of the gross transactional value and is due at the time of transfer of the payment to the service provider.

A foreign business with no fixed place of business in Kenya is required to register for the DST tax obligation. In the alternative, it may appoint a tax representative in Kenya. The tax representative shall be responsible for performing any tax duty or obligation imposed on the foreign business. This includes the submission of returns and the payment of a tax. Registered persons or entities shall be issued with a PIN.

The registered business or person shall submit a return and remit the tax due in each month to Kenya Revenue Authority on or before the 12th day of the following month. The registered business or entity shall at the time of the supply issue the purchaser of the services with an original invoice containing the details of the supply.

A person that fails to comply with the prescribed regulations may be liable to a fine not exceeding Ksh. 1,000,000 and/or to imprisonment for a term not exceeding 3 years.