In 2020, the Kenyan government introduced the Digital Service Tax. Since its introduction, there have been concerns and ambiguity around the implication of the tax on businesses, and confusion about the implementation.
We talked to commercial and litigation law experts, and Ikigai’s legal partner – Kangwana & Co. – to demystify the Digital Service Tax, and below is a summary of our insightful conversation.
What is the Digital Service Tax?
Introduced as part of the Finance Act of 2020, the Digital Service Tax (DST) is a tax on services provided through an online platform. The tax rate is 1.5% of the gross transaction value – exclusive of VAT – and is applicable to any service provided in Kenya and to Kenyans through a digital interface. This includes mobile apps, streaming platforms, education portals, and subscription-based platforms to name a few. The only services exempt from the Digital Service Tax are financial services such as money transfer platforms, banking applications, and online banking services.
Enforced on 1st January 2021, the tax is payable by resident and non-resident businesses operating in the Kenyan digital marketplace. A few amendments were enforced to include any person earning an income through digital interactions – looping in content creators as digital service providers.
The tax is applicable at the time of the transaction and is to be paid by the service provider to the Kenyan Revenue Authorities (KRA) every 20th of the month.
Implications of the Digital Service Tax
Due to the COVID-19 pandemic and restrictions on in-person business operations, most businesses sought to create hybrid business models of in-person and online solutions to survive. Having digitized aspects of their businesses to meet their customers where they are conveniently and timely, the Digital Service Tax imposes an additional challenge for small businesses attempting to stay afloat during these unprecedented times.
However, with the right information, this can also be an opportunity for businesses of all sizes to thrive and succeed in our current – and possibly – future context as well.
To stay up to date on any changes to the Digital Service Tax or for more information, please reach out to the team at Kangwana & Co. Additionally, you can replay our conversation on the Digital Service Tax – available on our YouTube channel.
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