A good number of Kenyans have been wondering what the Digital Service Tax (DST) recently passed and installed by KRA means and the information available hasn’t done enough justice on the topic. Freelancers and digital marketplace owners have been struggling to understand the tax for compliance’s sake and how it affects their businesses going forward.
As such, tax professionals have taken to different platforms to share their thoughts and shed some light on the topic, taking advantage of the buzz the new tax has generated on social media platforms like Twitter, Facebook, and LinkedIn.
Below is a breakdown of what this tax means, its implications to businesses affected by it, and how those affected can attain compliance. Of course, this has been done by professionals at Taxmart Kenya.
What is Digital Service Tax (DST)?
DST Is one of the most recently introduced taxes through Finance Act 2020. Digital Service Tax is a tax payable on income derived or accrued in Kenya from services offered through a digital marketplace provided that a resident or a non-resident with a permanent establishment in Kenya shall offset the DST paid against the tax payable for the year of income (Sec 12E). (DST is an Advance Tax)
What is “A digital marketplace “?
In a layman’s language is our ‘Muthurua,’ ‘Barma’, ‘Gikomba’ etc. a place that enables business people to carry out their transactions. The only difference being for a digital marketplace is a virtual internet-based platform that enables direct interaction between buyers and sellers of goods and services through electronic gadgets.
Digital Service Tax was effective from 1st January 2021 at the rate of 1.5%.
Who are eligible to pay Digital Service Tax (DST)?
The providers of the platform. And on what transactions? On gross transaction value exclusive VAT. The amount deducted will be paid to KRA by the platform providers for now until the KRA appoints the collection agents.
DST is due on or before the 20th day of the following months of the transaction
If withholding tax (WHT) has been paid on a digital service, then DST shall not apply to such an income.
- A user of the platform is said to be located in Kenya if;
i). Payment for the digital services is made using a credit or debit facility provided by any financial institution or company in Kenya.
ii). The user accesses the digital interface from a terminal (computer, tablet or mobile phone) located in Kenya.
iii). The supplies or digital services are acquired using an internet protocol address registered in Kenya or an international mobile phone country code assigned to Kenya.
iv). The user has a business, residential or billing address in Kenya.
- Under the DST Regulations the scope of taxable services includes but not limited to;
a). downloadable digital content including downloadable mobile applications, e-books and films; b). over-the-top services including streaming television shows, films, music, podcasts and any form of digital content;
c). sale of, licensing of, or any other form of monetising data collected about Kenyan users which has been generated from the users’ activities on a digital marketplace;
d). provision of a digital marketplace;
e). subscription-based media including news, magazines and journals;
f). electronic data management including website hosting, online data warehousing, file-sharing and cloud storage services;
g). electronic booking or electronic ticketing services including the online sale of tickets;
h). provision of search engine and automated held desk services including supply of customized search engine services;
i). online distance training through pre-recorded media or e-learning including online courses and training; and j). any other service provided through a digital marketplace.
KRA has also done a good job in sharing the right information through different platforms. Just recently, the team at KRA was forced to share a breakdown of the Digital Service Tax with its subscribers whose emails exist in their database. If you never received the circular explaining the tax, please click the buttons below to download the pdfs.
And of course, Taxmart Kenya is your, go-to tax consultant, on everything tax, assurance, audit, and accounting. Located at the amazing Panari Sky Centre, Taxmart Kenya boasts of a team of Certified Public Accountants, whose credentials are decorated with various professional qualifications such as CPA-K and more.
Talk to us today. For more information on DST, please check out https://www.kra.go.ke/en/helping-tax-payers/faqs/digital-service-tax-dst