The taxman has been going easy on the digital marketplaces, watching from a distance but eyeing its revenues. With a not so stable framework establish to regulate and oversee the operations of such platforms, it has been hard for KRA to discharge its function, or flex its muscles.
In physical markets where offline sellers and buyers meet to transact, Value Added Tax (VAT) is charged on supply of taxable goods or services made or provided in Kenya and on the importation of taxable goods or services into Kenya. Suppliers are expected to have registered for VAT and account for VAT charged on their taxable supplies through online monthly returns and pay any VAT due when goods or services are supplied to the purchaser, an invoice is issued in respect of the supply, or payment is received for all or part of the supply.
The Finance Act, 2019 was assented to by the President on November 7, 2019. The Act introduced policy and taxation measures for revenue generation in the financial year 2019/2020 for the government’s expenditure in support of the Big Four Agenda. The Parliament made significant changes to the provisions of the Finance Bill, 2019 before it was passed into law, among them repealing section 33b of the Banking Act that provided for the capping of bank interest rates and VAT tax for the digital economy.
The Act amended the Income Tax Act (ITA) and the Value Added Tax Act (VAT Act) to clarify and broaden the scope of VAT and Income Tax in the sector.
“Section 5 of the Value Added Tax Act, 2013 is amended, by inserting new subsections. The provisions of subsection (1) shall be applicable to supplies made through a digital marketplace,” read a section of the Act.
A digital marketplace is defined as means a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means, according to the Act. The Cabinet Secretary is empowered to make regulations to provide the mechanisms for implementing the provisions of the subsection (taxing the digital economy).