Kenya: Digital Service Tax Takes Effect Amid Implementation Concerns

Kenya Revenue Authority (KRA) has announced that the newly introduced Digital Service Tax (DST) came into effect on January 1.

The Finance Act 2020 introduced DST on income from services provided through the digital marketplace in Kenya and will be applied at 1.5 percent on the gross transaction value (exclusive of VAT).

“The Finance Act 2020 introduced a new tax known as Digital Service Tax (DST) effective 1st January 2021. DST is charged at 1.5% of the gross transaction value and shall be payable by a person whose income from service is derived from or accrues in Kenya through a digital market place,” KRA said in a statement.

It added that the tax shall be due at the time of transfer of payment for the service to the service provider.

One will be subject to DST if one provides or facilitates provision of a service to a user who is located in Kenya.

With the introduction of the DST under the Finance Act 2020, key stakeholders have been eagerly waiting to see KRA would implement it.

There have been various concerns about the exact scope of the transactions that fall under the ambit of new tax and the mechanism through which KRA would collect and administer it.

According to KRA, for residents and companies with a permanent establishment in Kenya, the DST will be offset against the income taxes due in the year of income.

For non-residents and companies without a permanent establishment in Kenya, DST will be a final tax.

The regulations have elaborated the array of transactions taking place on digital platforms that attract the tax.