KRA nets Sh174m in digital service taxes in six months

Times Tower in Nairobi, the Kenya Revenue Authority headquarters. FILE PHOTO | DENNIS ONSONGO | NMG

The Kenya Revenue Authority (KRA) collected Sh174 million in digital service taxes in the six months to December 2022, keeping it on pace to beat the full-year total of Sh241 million that was recorded in the year ending June 2022.

The revenue, netted from digital service providers including US tech giants Google, Netflix, Meta, Twitter and Microsoft, is expected to surpass Sh300 million by June.

The tax head is deemed to have a large headroom for growth given the huge value of e-commerce transcend in the country, once the registration of businesses picks up.

KRA says it was also targeting registration of 50 extra businesses in the financial year that ended June 2023 but has already surpassed this target with 64 businesses now on its DST taxes books halfway through the year.

In total, the taxman has registered 178 firms under the tax head. “Given a very modest rate of 1.5 percent, the collections are not very large. We, however, expect the collections will go up once the rate is upped,” KRA Digital Service Tax lead Nickson Omondi told the Business Daily.

Under the Income Tax (Digital Service Tax), 2020 law, all businesses selling services online are required to pay a flat tax of 1.5 percent on the value of services offered through digital platforms after its implementation on January 1, 2021, in addition to VAT of 16 percent.

Services targeted under the taxes include e-books and movie sales, dating sites, music, and games, and subscription-based media including news, magazines and digital content.

In the first six months after its implementation to June 2021, KRA collected Sh42 million and Sh241 million in the financial year ended June 2022.

The Treasury had proposed to raise the tax to three percent of the gross value of online transactions in the financial year starting July 2021 through the Finance Bill 2022, but Parliament shot down the proposal.

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