The new tax will also apply to supplies made via digital markets such as electronic services, apps, e-books, movies and online gaming
Consumers will have to pay higher for goods and services bought through the Internet.
This is after the Government mooted rules to introduce Value Added Tax (VAT) on digital content consumed in the country.
The Value Added Tax (Digital Marketplace Supply) Regulations, 2020 introduces new obligations that are likely to disrupt operations for both local and international companies.
“VAT shall be charged on taxable services supplied in Kenya through the digital market place,” explains the regulations in part.
“Taxable supplies made through a digital market place shall include electronic services and downloadable mobile apps, e-books, movies.”
Data management
The new law does not indicate the new VAT rate but is pegged on the Value Added Tax Act, 2013 that set a 16 per cent rate, which was revised to 14 per cent in April this year following the outbreak of the coronavirus pandemic.
Under the new law, subscription-based media content including news, magazines, journals, streaming of TV shows and music, podcasts and online gaming shall also be subject to the new digital services VAT.
Teachers providing their services through online platforms will also be required to register and pay for the VAT levy, as well as those providing data management services including web hosting, data warehousing, file sharing and cloud storage services.
“A person supplying taxable services through a digital marketplace shall be required to register for VAT in Kenya,” explains the Bill in part.
This implies both giant service providers such as Google, Facebook and Netflix as well as entrepreneurs running their businesses online.
The VAT proposals come in the wake of a new digital services tax introduced by the National Treasury that are expected to come in effect this financial year.
“Notwithstanding any other provision of this Act, a tax to be known as digital service tax shall be payable by a person whose income from services is derived from or accrues in Kenya through a digital market place,” explained Treasury in the 2020 Finance Bill.
The tax applies to both Kenyan and foreign proprietors. It is supposed to be deducted at the point of transfer of payment at 1.5 per cent of the gross transaction value.
KRA has in the recent years pushed for more taxation on multinational technology giants, on the back of shrinking revenues from local sources and a widening fiscal deficit.
The proposals have drawn reaction from technology firms including Uber and Google as well as local firms that question KRA’s capacity to effectively administer digital taxes.
Google last year said a digital tax could raise the cost of products and services adding that some digital platforms are end-to-end encrypted.
Enacting tax measures on them, it noted would amount to violating constitutional privacy rights of Internet users.
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