The Kenyan government has introduced new regulations through the Finance Bill 2019, to tax online businesses in a bid to widen the tax base in the country. Online businesses will now be required to charge VAT once the bill becomes law. In order to tap into the fast-growing digital economy, the Bill proposes to tax income accruing through a digital marketplace by introducing a new charging section.
In recent years, there has been an upward growth in online businesses, with the increasing internet users. Taxing online businesses would make sense, but it is not clear if international online businesses that operate in Kenya such as Google, Facebook, Twitter and Instagram who have no physical presence in Kenya will be taxed.
Also, it will be expected that there will be an increase in the prices of products offered by social media platforms such as Facebook and Instagram shops, which have been popular in recent years in Kenya. How this will be implemented is yet to be seen.
Below are the relevant portions of the proposed law:
Section 3: Section 3 of the Income Tax Act is proposed to be amended by inserting the words:
(1). Subject to, and in accordance with this act, a tax to be known as income tax shall be charged each year of income upon all the income of a person, whether resident or non-resident, which accrued in or was derived from Kenya
(2). Subject to this Act, income upon which tax is chargeable under this Act is income in respect of
A. Gains or profits from:
Any business, for whatever period of time carried on;
Any employment or services rendered;
Any right granted to any other person for use or occupation of property;B. Dividends or interest
C. a pension, charge or annuity; ii. Any withdrawals from, or payments out of, a registered pension fund or a registered provident fund or a registered individual retirement fund; and (iii) any withdrawals from a registered home ownership savings plan
D.income chargeable to tax includes income accruing through a digital marketplace
e. ‘Digital marketplace’ means a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means
E. An amount deemed to be the income of any person under this Act or by rules made under this Act;
F. Gains accruing in the circumstances prescribed in, and computed in accordance with, the Eight Schedule
G. Subject to section 15(5A), the net gain derived on the disposal of an interest in a person, if the interest derives twenty per cent or more of its value, directly or indirectly, from immovable property in Kenya; and
H. A natural resource income
Section 5 of the Value Added Tax Act, 2013 is proposed to be amended by inserting the words highlighted
1. A tax, to be known as the value added tax, shall be charged in accordance with the provisions of this Act on –
(a). A taxable supply made by a registered person in Kenya
(b). The importation of taxable goods; and
(c). The supply of taxable services2. The rate of tax shall be:
A. in the case of zero-rated supply, 0% or In the case of goods listed in section B of the first schedule 8%
In any other case, 16% of the taxable value of the taxable supply, the value of imported taxable goods or the value of a supply of imported taxable services.
7. The provisions of subsection (1) shall be applicable to supplies made through a digital marketplace
8. For the purposes of this section, a ‘digital marketplace’ means a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means