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.