Digital service tax: Content creators cry foul over a deep 15pc cut plan

The Kenyan digital content creation space has exploded in the last few years with creators earning hundreds of thousands of shillings from platforms such as YouTube and Instagram.

Local firms have also been falling over themselves in the race to ink lucrative influencer deals. For the talented, it has felt like riding the gravy train, with some living flashy lifestyles.

They've caught the attention of the government and it now wants a bigger chunk of its share through proposed multiple amendments to the Finance Bill 2023, one of them; being the taxation of payments made to digital creators.

If approved by the lawmakers, the income earned through digital content monetisation will be subject to a 15 percent withholding tax, which is significantly higher than the 5 percent rate for professional services.

Mohammed Assad Alby, one of the well-known content creators says the tax proposal is "extremely unfair" to young people who are trying to make ends meet in an environment where quality jobs are hard to come by.

“We have to come up with ways of creatively earning income for ourselves in ways that the older generation would never have thought of only to be slapped with tax. From all the tax changes ours is the craziest,” says the 24-year-old.

Aloof government

Mr Assad whose social media name is M.Alby says there is more to content creation beyond what is seen on social media and the government doesn't appear to appreciate this.

“One thing people don’t know is that before we get to a point where we can earn money from content, we spend so much from our own pockets with a slim chance of making it in the competitive industry. Cameras laptops, editing software, microphones, lighting, all this equipment is expensive in Kenya,” says M.Alby.

M.Alby who has amassed a following of over 634,000 on TikTok, over 159,000 on Instagram, and 32,000 YouTube subscribers says the tax will discourage job creation.

“Digital content has empowered me to launch a company and employ youth. We’re a young generation of dreamers that are not sleeping because we are chasing after our dreams,” he says of his M. Alby Production Limited.

The take is not different from Kevin Maina’s, a 23-year-old young content generator who is all over social media, creating different digital pieces.

“It isn’t worth it when facilitation for creators to grow financially is not upheld. Most creators are a forgotten lot and the taxes only create a strain,” says Mr Maina.

Besides his comic pieces, Mr Maina is a poetic stage performer, an actor, and a podcast editor.

Boasting over 367,000 followers on TikTok, and more than 71,000 on Instagram, Mr Maina is known for his piece Mainamind and a Showmax series Single Kiasi where he featured as a cast.

Uncertain future

With the recent government moves, he is concerned about the future of the creative industry.

“It is likely to affect the quality of work. Because higher taxes on the same income only strain your capacity to invest more in the craft,” he notes.

M. Alby blames the content creator's predicament on ‘wannabe’ creators who paint the picture of glamorous lifestyles on social media, giving the government a false impression about the earnings of a content creator.

Currently, there is no official data on what content creators take home.

“I feel like this huge tax increase is because of the fake lifestyles so many people put out on social media. I just saw a recent report that in Kenya only about 1.9 million people out of our over 50 million population have over Sh100,000 in their bank accounts. If the government has such data, then surely they can tell how many influencers and social media personalities have over Sh100,000,” decries M. Alby.

Surprisingly, when the Business Daily contacted a number of content creators, they said they were unaware of their sector, let alone the implications of the Financial Bill.

Push for a lobby

To change this. M.Alby says, “We need to come together as content creators and form a body where we can express our complaints because we will be hit so hard and the same generation that used to laugh at online content and term it as 'wasting time' and not a 'real job' is now hunting for our little gains as we grow.”

The bill defines content creators as any individual that is offering "entertainment, social, literal, artistic, educational or any other material electronically," through websites, and social media platforms like Facebook, Twitter, or Instagram, in partnership with brands or retailers.

Nancy Wotune, a senior advisor, at Ichiban Tax and Business Advisory LLP, offers insights on the topic that is proving to raise mixed reactions from the general public.

“It is useful to understand that the proposed tax is an advance tax on the income of digital content creators. Ordinarily, these content creators are required to pay tax on their income. The proposal allows Kenya Revenue Authority (KRA) to collect 15 percent in advance. KRA expects that the digital content creators will also pay the balance of the tax in April of the following year,” said Mrs Wotune.

Will the changes affect the creative industry?

“I think the creative industry will continue growing given the rapid pace of replacement of traditional commerce by digital commerce. However, KRA will likely collect more from these taxpayers who were hitherto not on KRA's radar.

It is useful to note that the 15 percent rate is much higher than the ordinary 5 percent imposed on other professional services. This could lead to perpetual income tax refunds after the digital content creators deduct their expenses in arriving at the taxable income,” she noted.

How are the earnings going to be traced through all their digital platforms?

“The obligation to withhold is on the person paying the digital content creator. Therefore, KRA will collect data on the persons paid and expect to collect. Don't forget that in the Finance Bill, 2023, KRA is seeking to collect data on transactions.

Therefore, persons paying these digital content creators will need to disclose this data to KRA. There is also the proposal that an expense must be supported by an invoice issued through an electronic tax invoice system, meaning KRA will be able to trace these transactions,” adds Mrs Wotune.

→ [email protected]