Few weeks ago, Judy Ochieng was watching Selina, her favourite TV show on GOtv when a message flashed on her screen, followed by a similar one in her phone.
“Dear customer, due to Government of Kenya 14 per cent to 16 per cent value added tax adjustment, please be advised your new GOtv Max subscription will be Sh1,070 per month effective January 1, 2021,” read the message.
At first, Judy thought that Multichoice, which runs GOtv, DSTV and Showmax home entertainment services across Africa, was hiking the subscription fee from Sh980 to cover its operational costs in a period where most companies have been ravaged by the Covid-19 pandemic.
Though the communication from her service provider was not clear, she would later learn that the increase was as a result of the new digital service taxes slapped on almost all forms of online businesses and subscription services in Kenya.
Introduced through the Finance Act 2020, the first tax, value added tax provided under the Digital Marketplace Supply Regulations, 2020, will be paid by a non-resident business from an export country providing a service to a Kenyan consumer.
The second one is the income tax provided under the Income Tax (Digital Service Tax) Regulations, 2020, which will be paid by a resident or non-resident person with a permanent residence in Kenya, and it shall also be paid by a non-resident without a permanent residence in Kenya.
“It shall be charged at a rate of 1.5 per cent of the gross transaction value of all digital services provided by the entity.”
Income tax
Residents shall be able to offset this tax against their final income tax due at the end of a financial year. For non-residents and companies without a permanent establishment in Kenya, this will be a final tax.
According to the Kenya Revenue Authority (KRA), the tax is due at the time of transfer of payment for services rendered via a digital marketplace.
“For residents and companies with a permanent establishment in Kenya, the Digital Services Tax will be an advance tax that they will offset against the income taxes due in the course of the year,” says KRA, which hopes to collect Sh5 billion in the first six months of implementation.
Both taxes shall apply to downloadable digital content, including mobile apps from Playstore or App Store, e-books and films.
Over-the-top (OTT) services for streaming television shows, films, music, podcasts such as Netflix, Amazon Prime, Disney and any form of digital content will be taxable as well as providers of e-commerce services such as Jumia, Kilimall, Jiji Kenya, Naivas, Gadzone, Masoko and Cheki.
All subscription-based media, including news, magazines and journals, will meet the taxman, even Kenya’s main online news outlets test the idea of a paywall for news consumers this year.
With the idea of cashless public transport gaining more attention this year, the government is also targeting booking and electronic ticketing services. Ride hailing services such as Bolt, Little Ride and Uber also fit the tax bracket.
Telemedicine apps such as MyDawa, Sasa Doctor, Livia, M-Tiba, Daktari Popote and Daktari Africa will also see a rise in taxes.
Students who do online research, translation, academic writing, Search Engine Optimisation (SEO) and other digital marketing services for a pay, will also be required to pay 1.5 per cent of their transaction value to KRA.
As global education moves towards e-learning, online distance training through pre-recorded media or live online courses and training will also not be spared.
Vloggers and social media influencers making money out of selling their goods or services on social media platforms such as YouTube, Vimeo, Twitter, Facebook, Instagram, Snapchat, TikTok and WhatsApp are also required by law to register for the two taxes through the KRA iTax portal, and remit the money on or before the 20th of every month.
Increasing prices
It is an obvious expectation that the cost of these taxes will be pushed to consumers, increasing prices and making them less affordable in a period of contracted business activity and loss of livelihoods.
But what is worrying tax policy experts is KRA’s enforcement strategy and its statement that it will be relying on the principle of trust for eligible entities to pay the tax.
“This will make it easy for most digital service providers to evade the taxes since the promotion services they offer are not attached to their bank or mobile money accounts,” Mwenda Tevin, a technology policy researcher at the Kenya ICT Action Network (KICTANet) told the Sunday Nation.
He adds that Kenyans’ nature of circumventing the law will soon be evident once they realise the regulator is banking on their faith to remit taxes.
A grey area of the new regulations on businesses conducted on WhatsApp exist, where the taxman may find it difficult to get consistencies for goods or services sold and money paid.
KRA Commissioner for Domestic Taxes Risaph Simiyu says the tax establishes a level playing ground for all businesses.
“Income sources that are already subject to withholding taxes are exempt from the digital service tax. This dispels the fear that it might choke local businesses in the digital marketplace and start-ups contemplating an investment in online shopping. It further rules out cases of double taxation for local businesses,” she explains.
John Walubengo, a tech consultant and lecturer at Multimedia University of Kenya, says the digital tax regulations are inevitable, with predictions that the digital marketplace will account for more than 40 per cent of the online retail market in 2021.