The Finance Act 2020, which was enacted by the Kenyan government on 29 June 2020 in time to implement tax measures at the start of the government’s calendar on 1 July, contains some far-reaching changes to the tax law in Kenya, including a digital services tax and a voluntary tax disclosure programme that provides for a waiver of interest and penalties.
The digital services tax will be payable on income that is deemed to be derived or accrued in Kenya from the provision of services through a digital marketplace at 1.5% of the gross transaction value of the service. The tax will be ‘deducted’ from resident entities and branches, and will be treated as an advance tax payment, available for set-off against the tax payable for the year of income.
The term ‘digital marketplace’ is defined as a platform that enables transactions or the interaction between buyers and sellers of goods and services through electronic means. The DST is to apply to:
- Streaming and downloadable services of digital content;
- Transmission of data collected about users on a digital marketplace;
- Provision of a digital marketplace, website or other online applications;
- Subscription-based media, including news, magazines and journals;
- Electronic data management, including website hosting, online data warehousing, file-sharing and cloud storage services;
- Supply of search-engine and automated helpdesk services;
- Tickets bought through the Internet;
- Online distance teaching; and
- Any other service provided or delivered through an online digital or electronic platform, excluding any service whose payment is subject to withholding tax.
The services of a licensed financial service provider carrying out online services which facilitate payments, lending, or trading of financial instruments, commodities or foreign exchange will not be subject to DST. The digital services tax has an effective date of 1 January 2021.
The Voluntary Tax Disclosure Programme (VTDP) is a tax amnesty programme that will be effective for three years from 1 January 2021. Under the VTDP, taxpayers may disclose tax liabilities that accrued within five years prior to 1 July 2020 and may be granted relief from the penalties and interest. It will apply to all taxes.
Taxpayers will be required to apply to the Commissioner of Domestic Taxes and, if satisfied with the application, the Commissioner and taxpayer will be required to enter into a settlement agreement, setting out the terms of payment of the accrued tax liabilities. The period for payment may not exceed one year from the date of the agreement.
The VTDP offers 100% remission of penalties and interest within the first year of its operation; falling to 50% in the second year and 25% in the third and final year. If a taxpayer fails to adhere to the terms set out in the settlement agreement, they will be liable for the entire penalties and interest.