Relief for Kenyan online businesses as Treasury seeks to exempt locals from digital tax

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The National Treasury is now pushing to exempt local businesses from the Digital Service Tax (DST).

Under the 2021 Finance Bill, National Treasury Cabinet Secretary, Ukur Yatani wants the DST to be applicable to foreigners or non-residents who use the digital market place in the country beginning January 1, 2022.

“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;” stated the highlight from Pricewaterhouse Coopers (PwC).

DST will also be due on the twentieth day of the month following the end of the month in which the digital service was offered.

According to PwC, this aligns the Income Tax Act to the DST regulations and removes the ambiguity previously experienced, as accounting for DST on each transaction would have been difficult to implement.

If adopted by Parliament, local businesses operating in the online space will not be subjected to tax for transacting businesses online.

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.

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The National Treasury is also pushing to further amend DST provisions which will see the expansion of the tax’s scope including businesses carried over the internet or an electronic network.

Under the proposed amendment, the description of the word “market place” will mean “an online platform enabling users to sell goods or provide services” which is currently defined as “a platform that allows direct interaction between buyers and sellers of goods and services through electronic means.”

KRA had projected proceeds from the Digital Service Tax to round off to an average Ksh. 10 billion, every 12 months.

This comes on the back of the gazettement of the Value Added Tax on DST Regulations 2020 on September 10, last year, and came into force on January 2, 2020.

Consequently, the move saw Facebook, which controls a population of over 3 billion people globally; subject Kenyans to VAT for advertising on the platform from April this year.

The taxes are applicable to advertisers whose ‘Sold To’ country on their business or personal address is set to Kenya and who have not confirmed that they are advertising for business purposes.

This is, however, not applicable to every Facebook account but only to those who meet the criteria.

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Lawrence Baraza is a prolific writer with competencies in Digital Media, Print, and Broadcast. Baraza is also a Communication Practitioner currently spearheading Digital content on Metropol TV's Digital Desk.

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