The saying goes that only two things in life are constant; Death and Taxes. If you are reading this it means that you have not experienced the first and are probably sick of the second. Despite your love or hate for taxes, as long as we live under a democratically elected government you will have to pay them. Like death, taxes have a habit of catching up with us eventually. If you do not pay them now, you will have to pay them later with interest.
The Kenya Revenue Authority has for days on end complained about its inability to meets its collection target with many Kenyans especially those in the informal sector evading the payment of taxes on their incomes. This means that the tax collection burden has largely fallen on the small percentage of Kenyans who are employed and on formally registered businesses. Some see this as unfair because everyone gets the benefit of government services.
To make up for this collection shortfall, the government has incurred a huge amount of loans from foreign and global lenders which have led to massive public outcry. So bad is the government’s borrowing habit that Parliament has had, on several occasions been forced to raise the debt ceiling higher. This has led to lots of pressure on the National Treasury to improve its collection capacity. This is why all eyes have now turned to the digital space.
The digital sphere has remained largely untouched by taxes in Kenya. The major players in the digital market are e-commerce platforms that have grown into household names such as Jumia, Jiji and Kilimall. Until recently the government had only taxed the general corporate tax based on their annual income and other adjacent taxes that relate to their businesses but none on their utilization of the Kenyan digital space.
However, with the introduction of the digital services tax in 2021, this state of affairs has taken a dramatic shift vide the coming into force of the Income Tax (Digital Service Tax) Regulations, 2020. The digital services tax is a tax that is payable from any income derived or accrued in Kenya through a digital marketplace. This tax is payable at the point of payment for a transaction. Under the legal regime governing digital taxes, a digital marketplace is a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means.
The Digital Service Tax was introduced in Kenya through the Finance Act, 2019 and enacted through the Finance Act, 2020 (Income Tax (Digital Service Tax) Regulations, 2020)…click to continue reading