Kenya plans to tax online businesses through the Finance Bill 2019

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The Kenyan Governments plans to tax online businesses through new regulations that will be introduced through the Finance Bill 2019. Online businesses will be required to charge VAT once the bill becomes law.

This move is apparently geared at widening the tax base in the country. This makes sense as online businesses have grown in recent years with Internet users increasing year on year. It is however 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. It is expected that special rules may be formulated detailing the operational mechanics of how taxation of the digital economy will be undertaken.

Instagram and Facebook shops that have been popular with Kenyans will be especially affected and this will lead to a increase in the price of their products.

There have been efforts to tax online businesses in the continent. Nigeria has announced that it is considering a 5% Value Added Tax (VAT) specifically for online purchases. Babatunde Fowler, head of Nigeria’s federal tax agency, says the government may appoint banks as agents to deduct 5% VAT on all local online purchases with a bank card. The policy could be in place by early next year.

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 services

2. 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

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