KRA, private sector adopt new ways to boost digital economy tax

Rispah Simiyu and  Sam Chappatte      

Kenya has undergone substantial transformation in the digital economy due to advances in Information and Communications Technology (ICT) which has resulted in exponential growth in electronic commerce. 

Digitalisation has enabled businesses to have the capacity to design and build their operating models around technological capabilities, with a view to improving flexibility and efficiency and extending their reach into the global markets. 

The number of Kenyans accessing mobile information and communication services, mobile money services, e-commerce, and high-speed Internet services have continued to grow exponentially.

Development of Kenya’s digital economy is largely due to the continued uptake of mobile communication services and the enhanced internet penetration across the country. 

Communications Authority of Kenya in their Fourth Quarter Sector Statistics Report for the Financial Year 2020/21 (April – June 2021) reported that as at June 30, 2021, the number of active mobile subscriptions was 64.4 million while the total number of internet/data subscriptions stood at  46.7 million with 99 per cent of these being mobile data subscriptions. 

The digital economy covers the core activities of digitalisation, ICT goods and services, online platforms, and platform-enabled activities.

It has a myriad of operating business models depending on the type of business or trade. 

Various aspects of the digital economy are covered under various legislation and policy frameworks including the Kenya Information and Communications Act, 1998, the Science and Technology Act, Cap 250, the National Payment System Act, 2013, the National Information and Communications Technology (ICT) Policy of 2006 and the  National Trade Policy of 2017. 

These are meant to stimulate investment and innovation in ICT and related digital economy activities; achieve universal access as provided by the Digital Access Index and Digital Opportunity Index among other goals.

With respect to taxation, the government has adopted a multi-pronged approach to enhance tax compliance in the digital economy sector. 

These include the review of various tax legislation to align them to the business models in the digital economy,stakeholder engagement and taxpayer education with players in this sector, and participation in global forums geared towards developing a consensus in the tax treatment of players in this sector, majority of whom trade across borders.  

Some of the tax legislative measures meant to address the changing business models in the digital space that have been enacted include Digital Service Tax and Value Added Tax (VAT) on the supply of services made in Kenya by non-residents through digital platforms. 

These taxes are aimed at ensuring equity and fairness in taxation by levelling the playing field for businesses in the digital economy and those using the brick and mortar model. 

KRA has been conducting targetted stakeholder engagements with an aim of understanding the operations of the sector and incorporating stakeholders’ views in legislation and implementation of tax laws affecting their business. 

It has also put in place taxpayer support systems to ensure simplification of tax payment processes such as iTax system enhancements and taxpayer onboarding support programs.

Given the nature of the digital economy and the various touchpoints enumerated above, KRA is continuously engaging industry players through the Kenya Private Sector Appliance (KEPSA) with the intention of exploring areas of collaboration.

These areas include implementation of various policy and legislative measures put in place to enhance tax compliance in the sectorm, for instance, the requirement that persons carrying out business through digital platforms have Personal Identification Numbers. 

The engagement also involves provision of information that may be necessary to confirm tax compliance to the KRA in line with the relevant provisions of the law, specifically the Tax Procedures Act, 2015, facilitation of taxpayer education to create awareness amongst the industry players of their tax obligations.

Education will also enlighten the players on integration of digital platforms with KRA’s systems such as the Tax Invoice Management System to facilitate sharing of data on a real-time or near real-time basis and also simplify tax compliance through auto-population of tax returns.

This collaborative compliance approach seeks to enhance tax compliance among industry players in the digital economy sector and thus minimise the need for punitive enforcement measures.

Kenya Revenue Authority and Kepsa are therefore encouraging digital platform providers and players in the digital economy to work with the taxman to enhance overall tax compliance and consequently increase revenue collection from this sector. 

— Rispah  is the  Commissioner for Domestic Taxes at KRA — Sam is chairman, Kepsa e-Commerce and Digital Economy sub-committee