You’ve probably heard of the digital service tax in Kenya, if you sell and buy goods and services online, the rules about digital tax worldwide are constantly changing and yes, they do affect you as a digital-based business.

Kenya is the latest frontier in the modern economy to be targeted to expand the country’s tax base by taxing online Business to Customer (B2C) transactions.

Digital Service Tax

As the digital economy continues to grow two and a half times faster than global GDP, a widespread trend has picked up across countries as governments want to charge tax based on the location of the purchaser of the product. The tax is called the Digital Service Tax (DST)

Several countries among them Kenya have begun to impose digital taxes to raise tax revenues (to help the economy get back on its feet).

The tax, which was introduced through the Finance Act 2020 will be payable by persons, both residents, and non-residents.

ALSO READ: Kenyans to Pay 1.5pc Digital Service Tax on Income Generated Online

Most DSTs that are being implemented or proposed worldwide share the same characteristics. They are generally a mix of gross transaction taxes. They apply at different rates with Kenya offering the lowest at 1.5pc on receipts from the sale of advertising space, provision of digital intermediary services such as the operation of online marketplaces like Facebook.

The following table describes the DSTs proposed or enacted in various countries around the globe.

How Does Digital Service Tax Affect You?

The digital services that will be subject to DST are wide-ranging and include online streaming of digital content such as movies, music, online games, and e-books, the provision of a digital marketplace that link buyers and sellers, subscription-based media including news, magazines, and journal electronic data management including website hosting, file-sharing, and cloud storage services, tickets for live events, restaurants, etc. purchased through the internet as well as eLearning and online courses.

The DST will however not apply to licensed financial services providers who provide online services that facilitate payments, lending, or trading of financial instruments, commodities, or foreign exchange. This means banks, licensed SACCOs, micro-finance institutions are exempted from DST.

Implementation

Here’s a summary of how DST is being implemented in Kenya from KRA

While it is still early to judge, it remains to be seen how effective the new law will be and the adoption by key industry players.