The Finance Act No. 8 of 2020 introduced a new provision to the Value Added Tax Act to address tax collection from online income-generating ventures. s 12E of the Value Added Tax Act (VATA) provides that despite any VATA provisions, it introduces Digital Service Tax (DST), charged at 1.5%, that will be paid by anyone whose income for services is derived from or accrues in Kenya through a Digital Market Place. Further, it provides that a resident or non-resident person with a permanent establishment in Kenya will offset the DST paid against the tax payable for that year of income while persons’ falling outside the two categories will have DST as the final tax.
The DST is due at the time of transfer of the payment of the services to the service provider – if the services under Regulation 3 are supplied to Kenya.
The DST will be applied towards downloadable digital content; subscription-based media or journal; over the top services; software, drivers, website filters or firewalls; electronic data management; music, and games; search engine and automated helpdesk services; tickets for live events, theatres, or restaurants; distance or online learning; digital content; on-demand services; electronic services as per s 8 (3); and any other digital marketplace service not exempted under the Act.
A business that accounts for taxes as under s 10 of the Act on the digital marketplace will notify the supplier providing Exported Services that it is not required to account for tax in Kenya for the supply. As a result, the Exported Service provider will not be required to charge tax on the supplies. However, failure to notify, which results in the supplier of the Exported Services charging tax, will result in denying the business receiving the supplies from deducting tax charged.
A supplier of services attracting DST will be required to register for tax – through a simplified tax registration framework – in Kenya if it is a business-to-customer transaction; and the supplier is dealing in Kenya as per s 8 (2) of the Act whereby the recipient of the services is in Kenya; payment is made through an entity registered under the Banking Act; or the payment for the services rendered in Kenya by the supplier is authorised in Kenya.
An Export Service provider, for business-to-customer, who does not wish to be registered under the simplified tax registration framework shall appoint a representative as per s 15A of the Tax Procedures Act, 2015.
The Regulation expounds on Place of Supply as whereby the recipient of the supply is in Kenya. To determine whether the recipient is in Kenya, Kenya Revenue Authority (KRA) will consider whether the payment proxy including credit card or debit card information and bank account details of the recipient of the digital supplies is in Kenya; or the residence proxy including the billing or home address or access proxy including internet address, mobile country code of the SIM card of the recipient is in Kenya.
The Time of Supply is expounded to mean – whichever comes first – the date on which the payment for the supply is received in whole or in part; or the date on which the invoice or receipt for the supply is issued. The Regulation further provides that a business-to-consumer supplier on a digital marketplace from an export country registered under these Regulations shall not be required to issue an electronic tax invoice: provided that the supplier shall issue an invoice or receipt showing the value of the supply and the tax deducted thereon.