(June 11, 2021) The Kenya Parliament is considering a bill—the Finance Bill, 2021—that, if adopted in its current form, would expand the definition of the terms “digital market place” and “digital service.” The bill defines “digital market place” as “an online platform which enables users to sell or provide services, goods or other property to other users,” and “digital service” as “a business carried out over the internet or an electronic network including through a digital marketplace.” (Finance Bill § 3.)
In 2019 Kenya amended its Income Tax Act and introduced a provision to tax income generated from a digital market place. (Finance Act, 2019, § 3.) This amendment defined the digital market place as “a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means.” In addition, the amendment mandated the cabinet secretary for national treasury and planning to enact regulations for the implementation of the tax on income generated from a digital market place. (§ 3.)
In June 2020, Kenya passed the Finance Act No. 8 to again amend the Income Tax Act and introduce what is known as a digital service tax. Section 4 of the Finance Act No. 8 states as follows:
(1) Notwithstanding any other provision of this Act, a tax to be known as digital service tax shall be payable by a person whose income from the provision of services is derived from or accrues in Kenya through a digital market place:
Provided that a resident person or a non-resident person with a permanent establishment in Kenya shall offset the digital service tax paid against the tax payable for that year of income.
(2) The tax payable under subsection (1) shall be due at the time of the transfer of the payment for the service to the service provider.
The 2020 Amendment imposed a digital service tax rate of 1.5% on the gross transaction value. (Finance Act No. 8, § 9.)
In December 2020, the cabinet secretary for national treasury and planning issued the Income Tax (Digital Service Tax) Regulations, 2020. The regulations define digital service as “any service that is delivered or provided over a digital marketplace.” (Regulations § 2.) According to section 3 of the regulations, the scope of taxable digital services includes
(a) streaming and downloadable services of digital content, including but not limited to movies, videos, music, applications, online games, and e-books;
(b) transmission of data collected about users that has been generated from such users’ activities on a digital marketplace, however monetized;
(c) provision of a digital marketplace, website, or other online applications that link buyers and sellers;
(d) subscription-based media, including news, magazines and journals;
(e) electronic data management, including website hosting, online data warehousing, file-sharing, and cloud storage services;
(f) supply of search engine and customized search engine services, as well as automated help desk services;
(g) tickets bought for live events, theaters, restaurants, etc., purchased through the internet;
(h) online distance teaching via prerecorded medium or e-learning, including online courses;
(i) any other service provided or delivered through an online digital or electronic platform excluding any service whose payment is subject to withholding tax under section 35 of the Income Tax Act.
The digital services tax does not apply to financial institutions specified in the fourth schedule of the Income Tax Act, financial service providers authorized or approved by the Central Bank of Kenya, and online services provided by government institutions. (§ 3.)
The regulations took effect in January 2021. (§ 1.)