This is a step-by-step guide on how to register, file, and pay digital service tax that was introduced a while ago in Kenya.
Digital transformation has enabled businesses to serve customers online instead of in person. Due to the nature of the transactions, the taxman has been in a difficult position to evaluate the online digital economy and collect the necessary taxes.
This is because, in the digital world, most commercial dealings occur online rather than in a geographical location.
However, recently, the government of Kenya introduced a mode of tax collection from the online business community known as the digital service tax. This came as part of the government’s measures put in place to ensure the collection of more revenue and increase the country’s tax base.
What is Digital Service Tax?
The digital service tax is a tax levied on income generated or accrued in Kenya due to services provided through a digital marketplace.
In a digital marketplace, buyers and sellers of products and services can communicate directly over the internet.
The Finance Act of 2020 introduced the digital service tax, which went into force on January 1st, 2021.
Read How to Apply for KRA Tax Compliance Certificate in Kenya
Services subject to Digital Service Tax in Kenya
You must pay the digital service tax if your company provides any of the following services to Kenyans.
- Digital content that can be downloaded, such as mobile apps, e-books, and movies.
- Over-the-top services, such as those that stream movies, music, TV shows, podcasts, and other types of digital material.
- Sale, licensing, or any other method of making money off of data gathered on Kenyan users that were brought about by their activity on a digital marketplace.
- Providing a digital market
- Media with a subscription model, such as newspapers, magazines, and journals.
- Electronic data management, which includes cloud storage, file-sharing, online data warehousing, and website hosting.
- Electronic ticketing, including online ticket sales; electronic booking.
- Supplying search engine and automated help desk services, including supplying search engine services that are specially tailored.
- Online courses and distance learning using prerecorded media, sometimes known as eLearning.
- Any other service offered via a digital marketplace.
Services Exempted from Paying Digital Service Tax
- A financial institution and a financial service provider that has been authorized or approved by the Central Bank of Kenya to provide online services that facilitate payments, lending, and trading of financial instruments, commodities, or foreign exchange.
- Online services provided by government institutions
- Kenyan income that is subject to withholding tax
- Earnings of a non-resident who engages in the business of communicating messages via cable or radio, optical fiber, television broadcasting, Very Small Aperture Terminal (VSAT), internet, or any other comparable connection.
Registration for Digital Service Tax in Kenya
In order to be able to pay digital service tax, one has to register as a digital taxpayer.
Regardless of whether it is a resident or non-resident, any business that is subject to the Digital Service Tax is needed to register for the DST requirement.
Anyone who offers a digital service in Kenya, whether they are a resident or a non-resident with a permanent establishment there, must submit an application to the Commissioner for digital service tax registration on itax portal.
How to pay the Digital Service Tax
Upon successful registration, the due tax will be paid in Kenyan shillings and deposited into the KRA accounts of authorized Kenyan banks.
By the 20th of the preceding month following collection, digital service tax must be reported and paid to Kenya Revenue Authority.
Once taxes have been filed by the taxpayer or the tax representative, they may be paid at any of the KRA partner banks or through Mpesa mobile money.
Any person who collects money for digital services, such as a digital service provider, is responsible for paying the applicable tax.
A digital service provider or their tax representative must submit a return in the designated format that includes the transaction value and the tax that was paid.
According to the Tax Procedures Act of 2015, a person who is liable for digital service tax must also maintain records.
Read How to Pay KRA Tax And Penalties Through Mpesa
A resident person for taxation purposes is;
- Individual
- A person who resides permanently in Kenya.
- A person who did not permanently reside in Kenya but spent at least 183 days there during the income year under consideration.
- A person who hasn’t lived in Kenya permanently but has visited on average 122 days during the course of the income review year and the two years before it.
- Non-individuals (Company) (Company)
A company is regarded as residing in Kenya if it is officially recognized as being registered in Kenya by the Cabinet Secretary for National Treasury and Planning, and its administration and control are based there as well.
Permanent Establishment (PE)
This refers to a non-resident who has a permanent place of business in Kenya that has been operational for at least six months or as specified by the Double Tax Agreement.
A non-resident individual who chooses not to register in line with the established regulations and does not have a permanent establishment in Kenya must designate a tax representative in accordance with section 15A of the Tax Procedures Act, 2015.
Digital Service Tax Rate in Kenya
The gross transaction value (GTV) determines the tax rate for the digital service tax.
The Gross Transaction Value is required to be;
a) In the event of a provider of digital services, the sum paid in exchange for the services; and
b) the commission or fee for using the platform in the case of a provider of a digital marketplace.
The rate of the digital service tax will be 1.5% of the gross transaction value. Value Added Tax is not allowed to be included in the Gross Transaction Value.
Is Digital Service Tax Final?
A resident or non-resident who has a permanent establishment in Kenya and pays DST will have their income tax debt for the relevant income year reduced.
The final tax, however, will be the DST paid by a non-resident who does not have a permanent establishment in Kenya.
Conclusion
Any company providing services on a digital marketplace to Kenyans starting in January 2021 will be required to pay the tax to Kenya Revenue Authority, whether the company is based in Kenya or not.
If an online business provides any of the services covered by this system, it should think about registering for this tax requirement.
If a firm is foreign-owned and does not have a permanent location in Kenya, it must designate a tax agent to handle tax filing and payment. To avoid the fines imposed by the Tax Procedure Act, businesses must abide by digital service tax regulations.
