The Kenya Revenue Authority (KRA) introduced new taxes which came into effect on January 1, 2021. These were the Digital Service Tax (DST) and the Minimum Tax. These two taxes were part of the agency's measures to raise revenue as they target collecting Ksh 1.57 trillion for the financial year 2020/21.
What is Digital Service Tax (DST)
DST is payable on income derived or accrued in Kenya from services offered through a digital marketplace. In the past few years, we have seen businesses move from traditional office spaces to online, basically, due to the availability of the internet. Internet connectivity is excellent in Kenya, so is mobile phone connectivity and cheaper smartphones.
A lot of commercial activities then started taking place online, especially during the Covid-19 period and we realized that there's so much income that goes untaxed. Countries such as Italy enforced this measure and we were lagging behind. So for us, it was the right time to join the global community so that we can be able to expand our tax base and maybe generate additional revenue.
What is the rate of DST?
We charge 1.5 percent of the gross transactional value. Gross transactional value is the payment the seller received as a consideration for his service.
What is a Digital Marketplace? Is it different from social media?
It is true that people fail to understand what a digital marketplace is. If you want to sell shoes or buy any electronic equipment online, you’ll have to do so on some of these platforms that are very popular. When a trader displays goods there, he or she has to pay a fee to facilitate the sale of goods and products. That platform is what we call a digital marketplace because that is where trade, the buying and selling of goods, takes place. Whether it is an app, or social media sites such as Facebook, YouTube or Instagram. All these are digital marketplaces.
Is DST charged for transactions outside Kenya or in Kenya only?
You see that's the thing, because we were actually concerned about that income that is being derived in Kenya. The recipient or buyer must be in Kenya because we can’t impose taxes on behalf of other countries or other jurisdictions.
Which kind of services are subjected to DST?
- downloadable digital content including downloadable mobile applications, e-books and films;
- over-the-top services including streaming television shows, films, music, podcasts and any form of digital content;
- sale of, licensing of, or any other form of monetising data collected about Kenyan users which has been generated from the users’ activities on a digital marketplace;
- provision of a digital marketplace;
- subscription-based media including news, magazines and journals;
- electronic data management including website hosting, online data warehousing, file-sharing and cloud storage services;
- electronic booking or electronic ticketing services including the online sale of tickets;
- provision of search engine and automated help desk services including supply of customised search engine services;
- online distance training through pre-recorded media or e-learning including online courses and training; and
- any other service provided through a digital marketplace such as social media influencers and content creation.
Kindly clarify on social media influencers. Why are they targeted?
If you have a YouTube channel that’s monetized, then you are paid on the basis of your views and subscriptions. You are paid for a service that you provide on the digital platform YouTube. That service is in terms of providing content. The influencers also advertise products and are paid by corporates and firms. They earn an income too and have to pay DST.
Is DST charged on goods sold or profit or transactional value made?
Just as we are calling it the Digital Service Tax, one has to understand that it’s about the digital services and not the goods sold. Let's move away from the goods completely. For example, if you create mobile apps, podcasts or digital content or an e-book that people download at a fee for them to go and read, these are the services that we are talking about.
If I buy a commodity online, then the seller has to pay the digital tax because he offered a service that ensured trade took place. I will get my goods, the seller will get his payment and KRA will get its tax. The DST is not charged on profit but the gross transactional value.
Is DST filed and how is it paid?
We have two categories of people we are targeting for DST. First, non-residents (non-residents with no permanent establishment and the non-resident establishment). These are offshore suppliers like social media platforms. Second, we have residents (residents with a permanent establishment). These two categories are treated slightly differently.
The non-residents will access the simplified registration framework. This is a provision we created for them through the system iTax (itax.kra.go.ke/KRA-Portal/) where they can register. At first, we had not asked them to register but we now do. Once they register using the simplified registration framework, then they will be able to still use iTax because it is accessible anywhere. They can file their payment returns and make payments.
For residents and the non-resident least file a payment return and make the payment therein.
By when should DST be submitted?
It is filed by the 20th of every month. For example, the returns for January will be filed between February 1 and February 31. The returns for February will be filed between March 1 and March 20 and so on up to December.
What are the penalties for failing to submit DST?
The penalties are stipulated in the legal Provisions under the Income Tax Act Section 12 e. These regulations are available on our website and anyone can access them. If one fails to comply with these regulations, then we adopt those penalties and interests in the Tax Procedures Act 2015. Fines range from between Ksh 100,000 to Ksh 200,000 (subject to consideration) and or a jail term not exceeding six months.
It’s just the same way we deal with taxpayers who do not file their annual returns on time and make a late payment. Non-residents may take time to adjust, but residents are used to filing tax and we expect them to adjust swiftly. The only difference is that you do not file DST at the end of the year but on the 20th of every month.
Every 1.5 percent of the gross transactional value filed every month will serve as an advance payment of tax for you so that when you're filing your annual return, then you can be able to claim that credit.
For non-residents putting in place further penalties and interest that have been provided for in the Tax Procedures Act. We are also putting in place enforcement measures that are specific to this sector because it is a bit unique.
Are there exemptions for those paying DST?
Some of the digital services were already subject to Withholding Tax as stipulated in the Income Tax Act Section 35 or Section 9 (2). However, what we have done is that we have created a provision that specifies that those paying withholding tax will not be subject to DST.
On Tuesday, January 26, Deputy Commissioner Caxton Masudi also noted that in the event that you have no income in a particular month, one would be not be required to pay DST, as it is based on the sales made.
"If you don’t have a steady flow of income and no turn over in a specific month, your return should be zero. This is allowed, if you haven’t made any sales, make a return of zero. No harm," he explained.
In such a scenario, the business or individual without any income could file the return as nil on the KRA portal. Additionally, if one creates content and doesn’t get paid for it, or for promotional purposes then there's is no DST payable.