Economy

MPs step up bid to tax online firms

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Treasury Secretary Ukur Yatani. FILE PHOTO | NMG

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Summary

  • The Finance Bill, 2020 establishes a digital service tax payable by firms that derive income in Kenya through a digital market place.
  • Firms are supposed to offset the digital service tax paid against the tax payable for that year of income.
  • The proposed law stipulates that payment made under the new tax shall be due at the time of the transfer for the service to the providers.
  • The taxman, in a futile attempt, tried to introduce taxation on the digital marketplace through the Finance Act 2019.

Global online firms generating cash in Kenya’s cyberspace will start paying taxes in the next six months if Parliament enacts the Finance Bill, 2020 into law.

The Bill, slotted for debate on Tuesday establishes a digital service tax payable by both foreign and local entities that derive income in Kenya through a digital market place. Firms are supposed to offset the digital service tax paid against the tax payable for that year of income.

“Notwithstanding any other provision of this Act, a tax to be known as the digital service tax shall be payable by a person whose income from the provision of services is derived from or accrues in Kenya through a digital market place.”

The proposed law has not defined the threshold of what constitutes the amount of tax payable under digital services but stipulates that payment made under the new tax shall be due at the time of the transfer for the service to the providers.

The taxman, in a futile attempt, tried to introduce taxation on the digital marketplace through the Finance Act 2019.

Introduction of such a tax is set to put Kenya on a collision path with multinationals like American technology giant Google, which had in August 2019, warned against imposition of tax on digital transactions.

The government then had proposed to review to the law through the Finance Bill 2019 that would have seen online business slapped with an income tax.

The multinational told MPs the amendments were contrary to the international tax system that requires companies to pay the bulk of their corporate tax in the countries where their products and services are created as opposed to where they are consumed.

But the taxman is fast tightening the noose on e-commerce firms. Last week, the Kenya Revenue Authority published a draft 2020 Value Added Tax (Digital Market Supply) Regulation.

If passed, downloadable digital contents, subscription-based media, software, data management and supply of music, film and games will be taxed.

Others include search engines and automated help desk services, online tickets, e-learning platforms, audio, vision or digital media and transport hailing platforms.