PwC cites hiccups in implementing digital services tax

Businesses outside the scope of the digital services tax (DST) could be forced to account for the tax according to a new analysis by tax consultancy PwC. According to the firm, the Kenya Revenue Authority (KRA) has included the DST as a prerequisite of value added tax (VAT) registration for digital marketplace supplies. “Entities not subject to DST are being required to register for the tax. This may lead to administration complexities and unnecessary queries from KRA,” PwC said in a tax advisory note. Further, PwC states the tax man is yet to configure the appointment of tax representatives to its iTax system forcing non-resident entities to register for DST in their own capacity exposing the directors of entities to litigation. Additionally, PwC notes the filing of DST has been configured as payment return instead of a monthly return creating a mismatch between the law governing the tax and subsequent regulations. Moreover, KRA has been fingered for its general position subjecting all services provided electronically to DST even where no digital market place exists. PwC earns the tax man might issue DST notifications and demand for payments without full understanding the business operating models. The digital services tax was introduced in 2019 subjecting tax to part of supplies made through the digital market place from January 1 this year. The DST rate is 1.5 per cent of the gross transaction value-the payment received as consideration for the digital service. Business entities have been on the move to align themselves to the new tax amidst the confusion on implementation. This week for instance, streaming giant Netflix emailed its Kenyan customers alerting of a Ksh.250 price increase to its different bouquets, effective from May 24. A premium Netflix subscriber will for instance pay Ksh.1450 a month down from Ksh.1200 previously. KRA has set its sights on raising Ksh.5 billion through the DST in the first six months of implementation.

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