Following in the footsteps of Tanzania and Uganda, the Kenya Revenue Authority (KRA) has implemented a digital service tax (DST). The new tax is “payable on income derived or accrued in Kenya from services offered through a digital marketplace”. The DST went into effect on January 1st, 2021, and has wide-ranging implications for content creators and digital service providers in Kenya.
Last Sunday, Loise Machira (of Tizi Talks) and corporate/tax lawyer, Ndegwa Alex, discussed the DST in a conversation on Instagram live.
In “Digital Service Tax 101” the pair unpacked what the new tax means the future of content creation in Kenya.
In many ways, the DST offers benefits to Kenya, a developing nation at the forefront of tech in Africa. Prior to the tax’s implementation, large digital service providers like Netflix were able to circumvent taxation of revenue gained in Kenya. According to Ndegwa, because the California based streaming service has no physical presence “… they are effectively able to avoid paying tax in Kenya”.
“Payable at 1.5% of the gross transaction value” the digital service tax has the potential to garner millions in tax revenue that could be used for the continued improvement of Kenya’s digital economy.
But, some question whether the DST will cripple local innovation.
Uganda implemented its very own social media tax in July 2018, requiring a “UGX200(US$0.05) per day to access over-the-top (OTT) services”.
Many Ugandans were vocal in their opposition to the tax and attempted to evade it through the use of Virtual Private Networks (VPNs).
“When the tax was introduced. I spent 8 weeks without being online. Taxation has made social conditions difficult” said a respondent in an interview with Policy.
Though Kenya’s DST will not charge users for access to services like What’s App and Facebook, f, it may have similar implications for local internet-based businesses.
Kenya is well known for it’s Instagram entrepreneurs. In an ecosystem where establishing a brick and mortar store can be prohibitively expensive, increasing numbers of business-minded young people are turning to the web.
“… you have a lot of people who just enjoy creating content because they are trying to grow their platforms… “ Loise said.
Loise explained the most important aspects of the tax for digitial entreprenuers in a follow up interview, including:
“If you’re paying withholding tax on any work, then you’re exempted from paying DST”
“Withholding tax doesn’t apply to anyone being paid less than 25,000 Kshs”
“But if the work you do is not subject to withholding tax, one has to pay DST”
“There’s nominumum amount for the tax to apply, as long as you’re providing a service online except selling goods, one has to pay the tax”
“The tax is due every 20th of the month and only when one is paid for an online service”
Generally, the tax has been met with skepticism.
“…so the influencer gets taxed but me the brand owner, I don’t, wow..” said blanch_njamiu and Instagram user.
For more thoughts on Kenya’s Digital Service Tax check out “Digital Service Tax 101” with Loise Machira and Ndegwa Alex here.
Read the Digital Service Tax brochure issued by the KRA here.