Cost of purchasing goods and services online will go up in Kenya from January 1, 2021 when government plans to introduce tax for online transactions.
Treasury Cabinet Secretary, Ukur Yatani, said the government will introduce “digital service tax” for online transactions last Thursday when he unveiled the country’s budget for the 2020-2021 fiscal year.
“The tax shall be applicable at the rate of 1.5 percent of the gross transaction value of a person or firm whose income from the provision of services is derived from or accrues in Kenya through a digital marketplace,” said Yatani.
Consequently, giant e-commerce platforms like Jumia, alibaba Netflix, Amazon and small local start up business supporting online transactions will be slapped with the new taxes.
Others players include HBO, Google and Online taxi-hailing firms like Uber and bolt.
While government sees the new measure as way to shore up revenues, analysts say the move will slow down growth of a sector that has been given a lifeline by the corona virus pandemic.
To reduces instances of physical interactions government has advised consumers to consider online transactions to curb spread of the deadly bug.
The Digital Marketplace Supply Regulations, 2020 introduces new obligations that are likely to disrupt operations for both local and international companies.
Taxable supplies made through a digital marketplace shall include electronic services, downloadable digital content including downloading of mobile applications, e-books and movies.
News consumers will also be taxed for subscribing to online news, magazines, journals, streaming of TV shows and music, podcasts and online gaming.
Those downloading software, drivers, website filters and firewalls will also be required to pay the tax.
Tax Advisory firm, Delloite in its analysis of the budget reckons the tax measure has many gaps that would pile administrative burden to consumers who risk ending up carrying the extra cost burden.
” This could impose an unreasonable administrative burden if the consumer is
required to account for the tax, bearing in mind there is no minimum threshold of payment amount
that would be subject to the digital service tax,” said Delloite.
The loopeholes in the new digital tax regime is feared could increase the risk of double taxation and negative cash flow implications for foreign owned companies.
Low margin businesses and businesses that are already subject to other taxes such as withholding tax will be hit hardest.
“A person who fails to comply with the provisions of these Regulations shall, in addition to the penalties prescribed under the Act, be liable to restriction of access to the digital marketplace in Kenya until such obligations are fulfilled,” the Digital Marketplace Supply Regulations, 2020 read in part.
Tax experts want resident taxpayers registered for tax be exempted from this tax while a specified minimum turnover threshold in respect of sales in Kenya set for non-residents.
“There is need to carefully define what services are covered; the current definition is quite wide in scope
since many businesses use electronic means to provide their services. In addition, the provision does
not state who is responsible for paying the tax,” said Delloite.