KRA lauds ‘super’ uptake of new digital service tax

Wednesday, June 2nd, 2021 00:00 |
KRA headquarters. Photo/File

Introduction of Digital Service Tax (DST) sent many tongues wagging Our writer Noel Wandera has a chat with Nickson Omondi from KRA Policy and Tax Advisory division on the new concept. Here’s a brief excerpt.

Q: Tax experts say the levy will subject non-resident entities to register in their own capacity, which attaches a liability to their directors. What is Kenya Revenue Authority’s (KRA) response?

A: The tax procedure Act and revenue Act that we have if the company is not meeting its tax obligations, we generally hold its directors liable and that was with respect to resident entities that are available and physically present here.

Once you have a law guiding procedure, it cuts across all other taxes. So when we introduced the DST and the element of having people not within our jurisdiction registering or obtaining a pin, then all other tax laws and procedures are still applicable to them.

Q. So how do you go about implementing your local laws in a foreign jurisdiction?

A.  There is a 1717 case law that was heard in the UK that was determined that you cannot apply your own rules in another jurisdiction.

So you can’t go to the UK and tell them I am going to attach your bank’s accounts. It won’t be practical.

What happens is we use other mechanisms to ensure non-residents are able to pay.

The mechanisms include multilateral and bilateral engementts, instruments such as exchange of information through an MoU with that other jurisdiction but I think its not easy to attach a liability to the directors who are not even within our jurisdiction. 

Q: To activate the Value Added Tax (VAT) portal, one must register for the DST. This puts most businesses which are not operating on the digital marketplace on a collision course with KRA, since they will be required to submit DST, yet they have not derived any revenue from the digital marketplace. How are you addressing this concern?

A: That is factual, but does not put additional pressure on the layers of technicalities to non-residents.

What usually happens is when you want to pick a Personal Identification number (PIN) today, you must pick an obligation, at least one.

And the default obligation that was wired in iTAX is income tax. Once you have picked income tax, then you can go on adding each obligation, depending on your business.

If you are dealing in excisable goods and services, you will add excise duty; If you have employees, Pay As You Earn (PAYE) and if doing vatable products, you have the threshold and you now add VAT, and so it follows through. 

Q: Why is default obligation wired into iTAX?

A:  The way iTAX was structured, it is such that you must have a default obligation, then you can pick the other obligations.

When DST on the market place was introduced, which touches on non-residents only, then there was now a need to have non-residents also complying. 

Q: How do they comply? 

A: They must have a PIN. How do they get a PIN? They must have a default obligation and the default obligation for this matter is the DST, which is an income tax item.

The good thing with DST and this came from the policy makers is you only comply with it if you have an income.

So in any month that you have nothing to declare, you don’t declare nil, you do nothing basically, so it’s a payment only obligation just like withholding tax.

So it does not add any layer of obligation on you. But we are also reviewing the position to see if we can make it any better now that there is a proposal to have DST only on non-residents.

However, this depends on how Parliament will legislate. We have also tried to do an analysis and it’s not easy to have VAT on the digital marketplace if you do not have DST. 

Q: How is the uptake of DST so far?

A:  It is super. So far, we have actually surpassed the expectations. Currently, we have over 50 non-residents registered but for the locals, we have over 300 who are paying, at individual and body corporates.

The target was to raise about Sh5 billion annually, but DST will be in operation for about six months, and the VAT will be operational for just two months.

So the overall target was just Sh1 billion for this financial year because of the effective dates of operation of the taxes, and so we are actually doing so well. In terms of the money we have collected so far, we are well past half-a-billion.

Q: The country is about to go into a buzz as people start filing their tax returns at the last minute. What have you done differently this time, to manage this last minute rush?

A: We keep on improving every day. We now have a KRA App and if you want to file a nil return, you don’t have to go to the Cyber Cafe, but just log into your Personal Computer. This is one area to facilitate nil filers.

That again reduces the traffic. We are also enhancing the performance of the iTAX system to manage last minute heavy load in order to accommodate the traffic as we know it will be heavy.

Within the system, we have redundancy space which we will activate when traffic is high. 

Q: Any other action have you taken?

A:  We have also trained our people to facilitate tax payers. They are constantly looking at emails so that if you have a problem with your P9, or your iTAx page is blocked or pin locked because of trying the wrong password, they will be there to ensure you are promptly sorted.

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