State set to exempt digital tax payment by residents

Tuesday, June 15th, 2021 00:00 |
National Treasury. Photo/File

Lewis Njoka @LewisNjoka

Online traders operating from within Kenya have something to smile about after the National Treasury proposed to exempt residents from paying Digital Service Tax (DST).

The tax, introduced via Finance Act 2020, requires that digital service providers and digital marketplace providers pay 1.5 per cent of the gross transaction value as digital service tax.

But in the 2021/2022 budget presented to Parliament last Thursday, Treasury proposed that only non-residents should pay the tax unlike previously where both residents and non-residents were liable.

Currently, many Kenyans make a living working online. These include online writers, app creators, artistic content creators and remote personal assistants among others.

In its analysis of the budget, Audit firm KPMG lauded the proposed changes terming it a relief to residents.

“This provision will offer relief to residents who are already subject to tax on the income that they derive from the digital platforms.

Further, this proposal aligns the taxation of income accrued through digital marketplaces with international best practices,” it said.

Kenyans working in the digital space welcomed the move, saying it would give them more headroom to deal with the effects of the Covid-19 on their businesses.

“Now we can breathe. These taxes were beginning to become a serious challenge for us,” said Arnold Nkonge, an online writer.

He said while Kenya might earn good revenue from global digital giants operating in the country, most ordinary citizens working in the digital marketplace earned too little to deserve the attention of the taxman.

Last Week, Treasury presented before Parliament a Sh3.6 trillion budget, the largest in the country’s history.

Of this amount, the ministry hopes to raise revenue (including appropriations-in-aid) totalling to Sh2.04 trillion leaving a deficit of Sh976.2 billion which will be met through internal and external borrowing at Sh658.5 billion and Sh271.2 billion respectively.

Turnover threshold

Digital service tax became effective starting January 1, this year. Introduction of the tax was met with resistance with analysts lamenting that the lack of a turnover threshold for DST would present significant administrative burden for companies with low value transactions.

Traders will, however, have to pay income tax on revenue generated from businesses carried out over the internet or an electronic network, including through a digital marketplace.

The budget proposes to change the definition of digital marketplace so as to bring into the ambit of income tax, multiple businesses that are conducted through the internet without employing online platforms.

According to KPMG, this expands the definition of digital services chargeable to VAT by adding those made over the internet or an electronic network.

In a move aimed at lowering the cost of data to the final consumer to spur growth of the digital marketplace, Treasury is proposing to provide rebates on excise duty paid on purchase of bulk data which is subsequently resold.

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