The Kenyan government implemented, as of 1 January, a new Digital Services Tax (DST) on income from services provided through the digital marketplace in Kenya at the rate of 1.5% on the gross transaction value.
Introduced as part of the Kenya Finance Bill 2020, the DST applies to the income of a resident or non-resident person that is derived or accrued in Kenya from the provision of services through a digital marketplace. DST will apply if you provide or facilitate the provision of a service to a user who is located in Kenya.
A user of a digital service is deemed to be located in Kenya if any of the following parameters are present:
- The user accesses the digital interface from a computer or other electronic device located in Kenya;
- Payment for the digital services is made using a credit or debit facility provided by any financial institution or company in Kenya;
- The digital services are acquired using an internet protocol address registered in Kenya or an international mobile phone country code assigned to Kenya;
- The user has business, residential or billing address in Kenya.
The DST applies to a broad range of digital services, which includes:
- Streaming and download services of digital content;
- Provision of a digital marketplace, website or other online applications that link buyers and sellers;
- 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 help-desk services, including supply of customised search engine services;
- Tickets bought for live events, theatres, restaurants, etc. that are purchased through the Internet;
- Online distance teaching via pre-recorded medium or e-learning, including online courses;
- Any other service provided or delivered through an online digital or electronic platform excluding any service whose payment is subject withholding tax under section 35 of the Act.
The Kenyan government is struggling with high debt levels following the Covid-19 pandemic; it needs to expand the tax base and has limited available options. Last June, the Kenya Revenue Authority set up a special unit to track revenue on every digital transaction and the government believes that the DST could generate up to US$45 million in revenue in its first six months.
However, many business leaders have raised concerns about the impact of the DST. They believe it could stifle the development of the country’s high-tech sector and damage Kenya’s potential to become an African tech hub. In particular, the lack of a turnover threshold for the tax could lead to significant administrative burdens for companies with low-value transactions.