National Treasury Finally Drafts VAT Rules for the Digital Marketplace

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Last year, the national assembly 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 hinting on VAT tax for the digital economy.

“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.

The new law empowered the National Treasury CS Ukur Yattani to come up with regulations to provide the mechanisms for implementing the provisions of the subsection (taxing the digital economy). The novel COVID-19 pandemic saw President Uhuru, slash VAT from 16% to 14% to protect businesses and Kenyans at large from the adverse effects of the virus. Although experts were concerned about how big a dent such a measure would have on KRA revenue basket, the new VAT is now law.

The National Treasury is now closing in on potential avenues for generating revenues. The ministry has already drafted regulations termed as the Value Added Tax (Digital Marketplace Supply) Regulations, 2020 targeted at the digital economy.

“The regulations relate to any supply of a service made over a platform that enables the direct interaction between buyers and sellers of services through electronic means,” reads part of the regulations.

Digital businesses targeted in these new regulations include subscription-based media outlets like news magazines, television shows, music and podcasts, sale of electronic event tickets, software programs, web hosting services, transport hailing platforms among others. It will cost consumers more to stream movies from Netflix, or ride an Uber if these new rules are implemented.

Like other businesses, they will be required to file VAT returns each 20th day of the month at the end of the tax period failure to which they will be penalized.