Effective from January 1, 2021, all digital marketplaces operating will now be required to pay a 1.5% digital service tax after the Finance Act 2020 amendment of the Income Tax Act of Kenya.
The new 1.5% ‘Digital Service Tax’ imposed on the gross transaction value of services is due at the time of payment.
The new tax now means that if, for instance, you are are taking an Uber and the cost of the trip is KES 100, the digital service tax is KES 1.5. If the fee is KES 200, the tax is KES 3.
The Kenya Revenue Authority (KRA), in charge of implementing and enforcing taxes in Kenya, has said it has created a special unit to track transactions and tax multi-nationsl using data-driven detection.
How will the new tax affect digital marketplaces like crypto P2P platforms in Kenya?
The Finance Act defines a ‘digital market place’ as a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means. At this stage, the precise meaning of a digital market place and those who will be impacted by the digital tax is unclear.
Introduction of Digital Service Tax (DST)
Payable by a person who derives or accrues income from services through a digital market place at the rate of 1.5% of the gross transaction value. @KRACare
Effective Date: 1st January 2021. #FinanceAct2020
— Kenya Revenue Authority (@KRACorporate) August 6, 2020
Similarly, it is not yet clear how the provisions of the Finance Bill (detailed below) are intended to interact with the regulations that are to be published under the Finance Act.
The Finance Bill proposes to amend the Income Tax Act in order to:
- introduce a digital services tax payable at the time of the transfer of the payment for the service to the service provider at the rate of 1.5% of the gross transaction value. The tax will be chargeable on income from digital services accrued in or derived from Kenya through a digital market place. In respect of a resident person or a non-resident person with a permanent establishment in Kenya, the tax will represent an advance tax, and
- empower the Commissioner of Income Taxes at the Kenya Revenue Authority to appoint agents for the purpose of collection and remittance of the digital services tax
While crypto is still not recognized and therefore not regulated in Kenya, there is no doubt that such platforms fall uner the ‘digital marketplace’ designation since they offer a platform for buyers and sellers of crypto through electronic means.
Taxation on the emerging digital economy has been a target for the taxman in 2019 having resolved this at the 2018 KRA Annual Summit. The tax authority has also been looking at how to tax transactions done using cryptocurrencies and has requested the Central Bank of Kenya recognize these emerging technologies for taxation.
How this new regulation will be implemented on crypto P2P platfforms operating in Kenya remains to be seen. There is no doubt however that the taxman will be looking to cast his net as wide as he can and crypto is likely on his radar this time round.
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