The cost of online commerce is set to increase as non-resident cloud service providers pass new value added tax (VAT) charges back to Kenyan consumers.

This is after local businesses were slapped with the digital service tax amid a raft of tax holidays which were restored earlier this year.

Data providers such as Digital Ocean, Amazon Web Services, Linode and many others are under pressure to pay VAT over and above digital service tax.

“To ensure compliance with the requirements of Kenya’s new Value Added Tax (Digital Marketplace Supply) Regulations, 2020 for non-resident companies such as DigitalOcean we will begin charging Value Added Tax (VAT) at a rate of 16 per cent to consumers, and these charges will show up on invoices issued on May 1, 2021,” cloud server infrastructure provider Digital Ocean said in an email.

Tax charges

“For customers with a valid VAT ID in Kenya, we will not charge VAT on your invoice. For that, we require you to enter your VAT ID in the “billing” page to avoid any issues.

If you are VAT registered but do not provide us with your VAT ID, tax charges will be reflected on invoices for the period if the VAT ID was not provided prior to the invoice issuance date,” the email reads in part.

Kenya Revenue Authority recently announced that they seek to collect Sh5 billion in revenue from taxation in the digital economy in the first six months of this year.

The government’s intention with these new taxation measures is to broaden the tax base through inclusion of business activity in the digital marketplace. The changes reflect a flood of new tax measures that could have far reaching ramifications on the business landscape of the country.

New legislation

“While it is laudable that Kenya is one of the early adopters of taxation of the digital economy, it remains to be seen how effective the new legislation turns out to be and the levels of compliance by the industry players,” consulting firm Rodl &Partner associate partner George Maina said.

VAT is supposed to be charged on business to customer transactions, it is however not clear why server storage providers are adding the costs to businesses.

On the other hand the digital service tax (DST)is applied at 1.5 per cent on the gross transaction value (exclusive of VAT) and it is effective from January 1, 2021.

One is subject to DST if one provides or facilitates provision of a service to a user who is located in Kenya.

Kenya’s rate of borrowing is rising fast, while the tax agency is under pressure to collect more taxes. 

International Monetary Fund has warned that the country will face economic collapse if more loans are not issued to the National Treasury.

Years of corruption in government combined with poor leadership in various State institutions have forced National Treasury into heavy debt that has been widened by the Covid-19 pandemic.