In an attempt at expanding the tax base and generating additional income for the Kenyan government, the Finance Act 2020 introduced the Digital Service Tax which will be levied on individuals and institutions that derive an income from services that they provide in the digital marketplace in Kenya. Below are five things you should know about the digital service tax in Kenya and how this tax will affect you as an online worker;
- What the Digital Service Tax is
The Digital Service Tax (DST) is a tax that will be levied on the gross transaction value received for services provided via the digital marketplace to a client or clients based in Kenya. It is a tax that is imposed on a person who provides a service or facilitates the provision of a service through a digital platform to a user located in Kenya.
A digital marketplace refers to any platform that enables sellers and buyers to interact directly and exchange goods and services via electronic means.
A Platform refers to any website, application, or other internet-based content services that facilitate transactions or trade through an electronic system.
A digital marketplace provider refers to a party that provides a platform or digital marketplace through which buyers and sellers can interact. Examples of digital marketplace providers in Kenya include; Jumia, Kilimall, Jiji, and Pigiame.
For purposes of Digital Service Tax, a Digital Service is defined as any service that is delivered automatically or subscribed over the internet or other electronic service.
- Scope of the DST
Services that will attract the DST include;
- Platforms that link buyers and sellers including digital marketplaces, websites, and other online applications that facilitate transactions and trade.
- Monetized transmission of data that has been collected from users based on their activity on digital marketplaces.
- Provision of digital content that is downloaded or streamed.
- Website hosting, cloud storage, online data warehousing, and other electronic data management services.
- Provision of news, magazines, journals, and other subscription-based media.
- Search engine and automated helpdesk services.
- Distance teaching and online courses delivered through pre-recorded media or other e-learning platforms.
- Purchase of tickets for live events, restaurant, and taxi services, and other services provided online.
- Any other services provided through digital marketplaces and platforms.
- User Location
Digital service tax is applied to users located in Kenya. Users will be deemed to be located in Kenya if:
-They pay for online services using a credit or debit facility issued by a financial institution in Kenya.
-They access online services and digital interfaces using terminals e.g mobile phones, computers, or tablets located in Kenya.
-They have a residential, business, or billing address in Kenya.
-They access or procure services using IP addresses registered in Kenya or mobile codes assigned to Kenya.
DST is charged at 1.5% of the gross transaction value (exclusive of VAT) on the following types of transactions;
-Payment received as consideration for services provided by digital service providers.
-Commission paid for transacting on a digital marketplace platform.
DST should be remitted by the 20th day of the following month. Persons liable for the DST include; the digital service provider and persons that collect payment for digital service providers.
Online workers or persons carrying out e-commerce businesses will be liable to pay a digital service tax on the gross value of their transactions with effect from January 1, 2021. Getting the right information about this tax will enable workers and business owners to improve their tax planning and ensure that they maximize their earnings while minimizing their tax burden at the same time.