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TaxNew Digital Service Tax Kenya 2021

In this legal alert, we brief you on the new Digital Service Tax introduced in Kenya on 1st January 2021 through the Income Tax (Digital Service Tax) Regulations, 2020.

What’s New?

The digital service tax applies a 1.5% tax on income accrued from services provided through electronic means to a user located in Kenya. This is applicable to both residents and non-residents so long as the income is derived from a digital marketplace.

VAT is still applicable, in addition to the new tax. However, VAT is charged on consumption while the digital service tax is charged on the income earned by a digital marketplace.

What is a Digital Marketplace?

A digital marketplace is a platform that enables direct interaction between buyers and sellers of goods and services through electronic means.

What items are taxable?

Downloadable content such as streaming platforms for music, e-books, TV shows, mobile apps, films, and any form of digital content are some of the services targeted by the tax.

In practice, the scope of the tax is still largely untested by means of litigation and we will keep you updated on the latest developments.

 

What people really want is fairness. They want people paying their fair share of taxes.

– Barack Obama

What’s the impact of the Digital Service Tax?

In our analysis, we understand that the most affected businesses will be those under the TOT regime (Turnover tax) and minimum tax. Guidance from the Kenya Revenue Authority is that the tax is only applicable to service providers and not sellers of goods.

We’d love to have your thoughts on this and how it may affect your business.

What happens to income tax?

The Digital Service Tax is a form of income tax in addition to the tax already levied. Income tax is still applicable and payable under the Kenya tax regime.

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