Tech firms to pay billions as State ends tax-free ride

Seth Onyango @SethManex

Big tech firms that leverage Kenya’s digital space will soon fork out billions to the taxman after the National Treasury outlined a formula prescribing new levies on the digital marketplace.

This follows  move by Treasury Cabinet Secretary Ukur Yatani to publish draft guidelines to tax netprenuers in a draft proposal for Value Added Tax (Digital Marketplace Supply) Regulations, 2020.

 Accordingly, firms such as Google, Uber, Bolt and Netflix which pioneered in other jurisdictions, but services are enjoyed in Kenya will be subjected to the new taxes.

 Kenyans therefore may soon pay more to stream movies during lockdown, set up websites, learn or teach online as well as buy tickets for events online. 

Proposed levies will be in addition to a 1.5 per cent digital tax on the value of online transactions introduced in the Finance Bill 2020.  

In the new bill, the Kenya Revenue Authority (KRA) commissioner will have the role of setting taxing modalities which also targets businesses for VAT online. 

Taxable digital marketplace will include downloadable digital content including downloading of mobile applications, e-books and movies.  

Subscription-based media including news, magazines, journals, streaming of TV shows and music, podcasts and online gaming and software programmes including downloading of software, drivers, website filters and firewalls. 

Currently, KRA is struggling to meet its revenue collection targets on the back of the crippling Covid-19 pandemic which has devastated businesses. 

Already, the taxman has missed its mid-annual tax collection target by Sh88.3 billion after netting Sh779.3 billion in the first half of the 2019-2020 financial year. 

KRA had projected to raise Sh1.8 trillion by June as compared to the Sh1.58 trillion collected in financial year 2018/2019. 

But KRA hopes to plug its revenue shortfalls but tapping into in the digital marketplace where most businesses have migrated due to social distancing measures to curtail the spread of the virus. 

Other online services targeted by Treasury are electronic data management including online data warehousing, file-sharing and cloud storage services. 

Also, to be levied are the supply of music, films and games, supply of search-engine and automated helpdesk services including supply of customised search-engine services and tickets bought for live events will also be taxed. 

Distance teaching via pre-recorded medium or e-learning including supply of online courses and training — supply of digital content for listening, viewing or playing of any audio, visual or digital media as well as supply of services on online marketplaces that links the supplier to the recipient will now fall into the tax net. 

But KPMG argued that while the tax is a recognition of the growth of the digital market at the expense of brick and mortar establishments, it will be difficult to implement due to the amorphous nature of digital transactions. 

“There have also been delays in publishing the promised regulations which speaks to the difficulties of implementing the tax,” it said in a statement. 

Electronic services

Currently, the requirement is that non-residents register and charge value added tax (VAT) for electronic services supplied to persons who are not registered for VAT in Kenya. 

 Last year, President Uhuru Kenyatta signed into law the Finance Act which broadens the Income Tax Act net to include income accruing through a digital market place.