Kenya wants to raise the digital service tax (DST) to 3% in July, as the government seeks to generate domestic income and reduce the budget deficit by tapping the burgeoning online economy. The higher rates, suggested by the country’s Treasury department in the Finance Bill, are anticipated to be approved by MPs. The hike comes little over a year after Kenya implemented the DST, which affects digital businesses like Amazon, Uber, Spotify, and Netflix.
“The Third Schedule to the Income Tax Act is changed… by eliminating the word ‘one-point-five percent’ from paragraph 12 (digital service tax rate) and substituting the expression ‘three percent,'” says the bill. Ukur Yatani, Kenya’s Treasury cabinet secretary, wrote in the Finance Bill 2022. The DST is a tax imposed on the gross transaction values of technology enterprises inside a certain jurisdiction. Companies or people (non-residents) in Kenya, East Africa’s largest economy, are required to pay it if they “supply or enable provision of a service to a user who is based in Kenya.”
Over-the-top services such as video streaming and podcasts, subscription-based media such as news, digital marketplaces, and downloadable digital material such as e-books and films are among the taxable services, according to the country’s revenue authorities. Other services include electronic data management, electronic ticketing, online distance learning, and the selling, as well as the licensing or monetization of any data obtained about Kenyan consumers from locations like digital marketplaces. Companies with no offices in Kenya must register online or hire a tax agent to file returns and make payments on their behalf.
The COVid epidemic, as well as attempts by the Paris-based Organization for Economic Co-operation and Development (OECD) to guarantee that governments enhanced taxation rights over corporations with operations in their countries, are thought to have expedited the use of DSTs. Only four OECD countries, including Kenya (which had previously adopted DST) and Nigeria, abstained from a tax pact reached last year that established a 15 percent minimum corporate tax rate for multinational businesses. According to the OECD, this step will guarantee that multinational corporations pay a fair amount of taxes in nations where they operate.