What you need to know about Digital Service Tax in Kenya

Digital Service Tax (DST) is a tax that is payable on income derived or accrued in Kenya from services offered through a digital marketplace. A digital marketplace is defined as a platform that enables direct interaction between buyers and sellers of goods and services through electronic means. DST will apply to the income of a resident or nonresident person derived or accrued in Kenya from the provision of services through a digital marketplace. One will be subject to DST if one provides or facilitates provision of a service to a user who is located in Kenya.

What is the rate of DST?

1.5% of the gross transaction value:

1. In the case of the provision of digital services, the payment received as consideration for the services.
2. In the case of a digital marketplace, the commission or fee paid to the digital marketplace provider for the use of the platform.

Note: The gross transaction value is exclusive of VAT.

Who pays DST?

Resident and non-resident:

1. Digital service providers.
2. Digital marketplace providers.
3. Their appointed tax representatives (in the case of non-residents digital service providers or digital marketplace providers without a permanent establishment in Kenya).

This tax is payable by both residents and non-residents who derive or earn income in Kenya through the provision of services on the digital marketplace. For non-residents without no permanent establishment in Kenya (offshore service providers), DST will be a final tax. Offshore digital service providers can comply using the simplified registration framework available on iTax or have the option to appoint a tax representative who will comply on their behalf.

On the other hand, for residents, DST will be treated as an advance tax to be offset against taxes payable for that year of income. Resident digital services providers do not need to register for DST. They will be required to access their iTax profiles to file the DST return and make payment for the tax due; Between 1st and the 20th of the following month that the digital service was offered. 

When is the due date for DST?

The return and payment with respect to DST is due on or before the 20th day following the end of the month the digital service was offered.

How does one determine that the user is located in Kenya?

If any of the following parameters are met:

1. Payment proxy: Payment for the digital services is made using a credit or debit facility provided by any financial institution or company in Kenya.
2. Terminal proxy: The user accesses the digital interface from a terminal (computer, tablet or mobile phone) located in Kenya.
3. Internet proxy: The supplies or digital services are acquired using an internet protocol address registered in Kenya or an international mobile phone country code assigned to Kenya.
4. Location proxy: The user has a business, residential or billing address in Kenya.

What are the DST taxable services?

Under the DST regulations, taxable services include the following:

1. Downloadable digital content including downloadable mobile applications, e-books and films.
2. Over-the-top services including streaming television shows, films, music, podcasts and any form of digital content.
3. Sale of, licensing of, or any other form of monetizing data collected about Kenyan users which has been generated from the users’ activities on a digital marketplace.
4. Provision of a digital marketplace.
5. Subscription-based media including news, magazines and journals.
6. Electronic data management including website hosting, online data warehousing, file-sharing and cloud storage services.
7. Electronic booking or electronic ticketing services including the online sale of tickets.
8. Provision of search engine and automated help desk services including supply of customised search engine services.
9. Online distance training through pre-recorded media or e-learning including online courses and training.
10. Any other service provided through a digital marketplace.

What are the exemptions of DST?

The following instances shall be deemed to be exempted from DST.

1. Income that is already subject to withholding taxes.
2. Financial institutions and platforms that offer financial services such as payment gateways, money lending etc.
3. Governments platforms that offer access to government services.

Is DST good for the economy?

The collection of the digital service tax ensures equity, fairness and objectivity between traditional and new digital methods of doing business. Lack of an ideal taxation mechanism has for a long time seen most businesses in the digital marketplace operate without remitting their fair share of the revenue.

DST will also expand the tax base to a significant extent by raising additional revenue without overburdening taxpayers already in the tax bracket. Since the tax also targets overseas companies dominating the digital marketplace, its implementation will ensure these enterprises plough back the income they generate from Kenyan customers hence contribute to the growth of our economy.