Relief for Kenyans in digital service tax waiver

Thousands of businesses and individuals in the country are set for significant relief with Treasury pushing for amendments to excuse locals from accounting for the digital service tax (DST).

Under the 2021 Finance Bill, the exchequer wants the DST to be only applicable to non-residents/ foreigners from January 1, 2022.

If adopted by Parliament, local businesses operating in the online space will no longer be obligated to account for the tax inside just 12 months of the DST implementation which commenced on January 1.

Tax analysts expect the waiver of the tax on locals to eliminate the occurrence of double taxation while making significant strides to easing the cost of doing business in Kenya.

“This is a relief for online platforms which accrue and derive income within the Kenyan legal entity as this allows such entities to only pay corporate income tax when they are profitable,” PwC stated in a note highlighting the 2021 Finance Bill.

“This provision will offer relief to residents who are already subject to tax on the income that they derive from the digital platforms” added tax analysts at KPMG.

On his part, Viffa Consult Chief Executive Officer Victor Agolla, sees the waiver of DST as the removal of roadblocks to the growth of the country’s nascent digital economy.

According to him, government regulation has been a key barrier to the evolution of small and medium enterprises.

“The removal of DST will go a long way in supporting entrepreneurs in the digital space to go through the removal of barriers that impede growth, cognizant that taxes and legislation are key barriers to the growth of small businesses in Kenya,” he said.

The DST which came into being through the now 2020 Finance Act as a means of expanding the exchequer’s revenue base is charged at the rate of 1.5 per cent of the gross transaction value.

The first payments for the tax were on February 20, representing the first twentieth day following the end of the month in which the digital service was offered.

Further amendments to DST provisions will see the expansion of the tax’s scope including businesses carried over the internet or an electronic network.

At the same time, the description of a market place is set to be amended becoming an online platform enabling users to sell goods or provide services.

Previously, the marketplace had been limited to a platform allowing direct interaction between buyers and sellers via electronic means.

The revision to limit DST to non-residents is nevertheless expected to trim the size of revenues derived from the tax.

Initially, the Kenya Revenue Authority (KRA) had projected proceeds from the digital service tax to round off to an average Ksh.10 billion, every 12 months.


National Treasury Kenya Revenue Authority (KRA) 2021 Finance Bill digital service tax (DST)

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