PwC Kenya has urged taxpayers to comply with the Finance Act 2020 on Digital Service Tax (DST) that introduced a tax of 1.5% of the gross transactional value effective 1st of January 2021.

According to Nicholas Kahiro, PwC Manager and Corporate Tax Specialist, “The Kenya Revenue Authority (KRA) has further instituted provisions that have expanded the applicability of DST to cater for the changing marketplace with DST being one of the key revenue measures of KRA especially from corporate tax policy. DST is here to stay. Its main target is capturing non-resident compliance but, in its regulations, it has also touched on residents.”

KRA defines a digital marketplace as a platform that enables the direct translation between multiple buyers and sellers of goods and services through electronic means. The digital business models that are targeted include Online advertising, On-demand TV shows, video platforms, digital payments, a cashless economy and ecommerce and marketplace.

According to PwC, DST is applicable if there is an existence of a digital marketplace, generation of income from provision of services through a digital market place and provision of digital services.

The emerging issues on the tax provisions include

  • Compliance issues which comprise of registration and payment.
  • Appointment of tax representatives which has not yet been configured on iTax.
  • Entities not subject to DST are required to register. This may lead to administrative complexities and unnecessary queries from KRA.
  • DST return configured on iTax as a payment return and not a monthly return with the issue being the mismatch between the law and regulations.

The legal ambiguities include KRA’s general position that all services provided electronically are subject to DST even if no digital market pace exists. KRA has been accused of issuing DST notifications and demanding DST without fully understanding the business operating models.

Secondly, commissions are subject to DST with the issue being lack of consistency on tax positions on revenue streams. The last being interplay between DST and minimum tax with the issue being lack of clarity on whether DST can be used to offset minimum tax.