KRA eyes Sh14bn digital services tax from foreign firms in three years

The Kenya Revenue Authority (KRA) has set a Sh13.9 billion tax goal in the next three years through June 2022 from foreign firms using the Internet to market and sell products in Kenya.

The taxman has identified foreign firms, which derive or accrue income in Kenya through digital marketplaces — selling exclusively online or providing platforms for such deals — as a major driver of tax receipts in coming years.

The digital services tax, which came into effect at the start of January, is 1.5 percent of the gross transaction value. It is levied on the sale of e-books, movies, music, games and other digital content. It also applies to foreign companies. The KRA target signals that firms like Amazon and Netflix are forecast to generate sales of about Sh926 billion in the three years.

“[Data on e-commerce transactions] signals a shift into the digital economy and, therefore, presents an opportunity for KRA to collect digital service tax (DST) as well as increase compliance on VAT and income tax,” the KRA strategists wrote in the corporate plan for three years from July 2021.

The taxman initially targeted a share of the revenue made by the resident and non-resident firms, which sell products over the Internet, but that has been amended in the Finance Act 2021 to apply to non-resident firms effective July 1, 2021.

DST receipts amounted to Sh129 million in the first month the law was enforced, according to the KRA’s corporate plan, valuing transactions through the digital marketplace at about Sh19.35 billion in January.

The taxman aims to collect Sh3.4 billion this fiscal year, projecting the value of digital transactions by firms not incorporated in Kenya at Sh226.67 billion.