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The Kenya Revenue Authority (KRA) will from this month start collecting a 3 per cent levy on content providers, in a move that will reduce their profitability, making them uncompetitive and at worst, lead to closure of small business.

The levy, known as the Digital Service Tax (DST) is part of the Government’s tax raising measures imposed under the Finance Act 2023, and applies to assets such as data, images, videos and written content, which are all important components of the creative industry.

KRA defines the digital service tax as anything identifiable that is created and stored digitally and has or provides value. 

The tax, to be collected every 20th of each month, has the potential of increasing the cost of production and reducing the profits for those operating . 

Speaking to the Business Hub, Ronny Chokaa, a macroeconomic analyst with investment bankers Genghhis has observed that the tax will provide the taxman with challenges of collection, as a large part will require self reporting, given that the number of Digital Service Providers are coming up every day.

“The rationale would be for them to sign themselves up and report their income derived from digital services offered and accompanying transactions,” Chokaa said. 

According to the analyst, though the tax was elaborate, the collection mechanism was not clear. “I don’t know how they will bring into the tax net all these providers,” he said. 

“It really leaves to be seen in the first year of operation how KRA will bring the providers in the tax net,” he added, a period within which the government will be required to review and update the digital tax periodically to reflect the changing dynamics. 

But even as the government ponders on how to deal with collection issues, content providers and their consumers will be staring at increased cost of doing business and the option of spending on the products amid increasing cost of living.

The levy will affect consumers of digital products and services, with creators and businesses preferring to pass on the tax burden to them by raising their prices in order to maintain their profit margins.