Kenya plans to double the Digital Services Tax (DST) to 3% from July this year as the government harnesses the growth of the online economy to boost domestic revenue and reduce its budget deficit.
The new rates, proposed in the budget bill by the country’s Treasury Department, are expected to pass lawmakers. The increase comes just over a year after DST came into effect in Kenya, affecting tech companies including Amazon, Uber, Spotify and Netflix.
“The Third Schedule to the Income Tax Act is amended… by deleting the expression “one point five percent” appearing in paragraph 12 (Digital Services Tax Rate) and replacing it accordingly with the phrase ‘three percent,'” said Ukur, Kenya’s cabinet secretary to the treasury. Yatani wrote in the Finance Bill 2022.
The DST is a tax on the gross values of transactions of technology companies in a given country. In Kenya, East Africa’s largest economy, businesses or individuals (non-residents) are obligated to pay it if they “provide or facilitate the provision of a service to a user who is in the Kenya”.
Taxable services, according to the country’s tax authority, include over-the-top services such as video streaming and podcasts, subscription media including news, digital marketplaces and downloadable digital content like books electronics and films.
Others include e-data management services, e-ticket booking, online distance learning and selling, and licensing or monetization of all collected data on Kenyan users generated at from places like digital marketplaces. Foreign companies without offices in Kenya are required to register electronically or appoint a tax representative in the country to file returns and make payments.
The adoption of DSTs has reportedly been accelerated by the COVID pandemic and efforts by the Paris-based Organization for Economic Co-operation and Development (OECD) to ensure that countries increase tax rights on the income of multinationals with activities in their country.
In a tax deal brokered last year, of the 140 OECD members, only four – including Kenya (which had already implemented digital daylight saving time) and Nigeria – abstained from a tax deal. agreement setting a minimum tax rate of 15% for multinational companies.
The OECD said the move will ensure these multinationals pay a fair share of taxes in the countries where they have operations.