Why businesses must account for the Digital Services Tax

By 2017, about a quarter of the world’s population or about 1.3 billion people at the time had purchased goods online.

This is according to data contained in a survey by the United Nations Conference on Trade and Development (UNCTAD) which further attributed the global value of the trade at $29 trillion shillings, a figure well into the gazillions when converted to local currency.

The bulk of these transactions have been cross border and have largely comprised of business to customer (BTC) deals.

In Kenya, the e-commerce sector has been described among the most vibrant online trading eco-systems on the continent.

While statistics are lacking on the sheer size of the industry, e-commerce in the country continues to grow steadily with trading volumes projected to hit Ksh.220 billion ($2 billion) by 2024 according to a survey by Statista.

The growth of e-commerce in the country has been tied to factors including innovation in online payments, mobile connectivity and developments in logistical infrastructure.

The rise of online trading has further found firm footing from the COVID-19 pandemic with restriction measures pushing more businesses to the online space.

Domestically, entities such as Jumia, KiliMall and Africa Sokoni are slowly becoming household names while entrepreneurs in Kenya have turned to social sites such as Facebook and Instagram to market goods online.

As a large part of the economy makes the shift towards online commerce, the Government must then rope in the business entities in this space to ensure they account for their fair share of taxes.

The Kenya Revenue Authority (KRA) has therefore moved to implement the Digital Services Tax (DST), a tax payable on income derived or accrued in Kenya from services offered through a digital market place.

The tax is charged at the rate of 1.5 per cent of the gross transaction value for payment received as consideration for the services or the fee paid to the provider for the use of the platform.

Digital service providers, digital market place providers along with their appointed tax representatives for non-residents are expected to account for the tax.

The scope of taxable digital services includes downloadable digital content, over the top services such as video streaming, subscription based media, provision of a digital marketplace, electronic data management and electronic ticketing services.

KRA has implemented the administration of DST through the self-assessment regime for accounting and making payment of the tax due. The tax man has further provided a simplified tax registration process for non-resident parties.

KRA will be latching on to the new tax to expand the tax base and raise additional revenues to support the Government’s service provision.