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Introduction of the Digital Tax under the Finance Act 2020


The Kenyan government in a bid to raise government revenue has re-introduced a 1.5% digital tax on
the gross transaction value of a service provided through a digital marketplace. It shall be payable by a
person whose income is from a service derived from or accrues in Kenya through a digital marketplace.
The tax shall be due at the time of the transfer of the payment for the service provider.
Residents and non-residents with a permanent establishment will be entitled to offset the digital tax paid
against the tax payable for that year of income. Permanent establishment in this context has the same
meaning given under the Income Tax Act

The Finance Act 2020 defines a ‘digital marketplace’ as a platform that enables the direct interaction
between buyers and sellers of goods and services through electronic means. This notwithstanding, the
precise meaning of a digital marketplace and those who will be impacted by the digital tax is unclear.
While the Finance Act of 2019 (the “2019 Act”) introduced provisions subjecting income earned or
accrued through a digital marketplace to income tax and VAT, regulations thereunder for its
implementation are yet to be issued. The net effect, therefore, is at this stage there we are uncertain as to
how the Digital Tax is intended to synchronize with the yet to be published regulations under the 2019
Act.

The digital tax is due to come into force on 1 st January 2021.

Post Author: kangwanaco