Subscription based media will now be the subject of value added tax (VAT). The National Treasury published draft rules to bring the digital market place under the tax net, termed as the Value Added Tax (Digital Marketplace Supply) Regulations, 2020.

Subscriptions to popular streaming site Netflix, the sale of electronic event tickets, software programs, web hosting services and downloadable digital content will now be subject to VAT charges and any businesses making direct transactions with buyers in Kenya.

“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,” note the regulations.

Transport hailing apps like Uber, Little and Bolt will also be subject to VAT charges effectively raising consumer costs of using their services.

Failure to file the VAT returns within the prescribed period-the 20th day of the month following the end of the tax period will attract penalties including restrictions to the access of the local digital market place. Firms in the digital market place will be the subject of income tax at the rate of 1.5 percent of gross transaction values under the proposed Digital Services Tax included in the Finance Bill, 2020.

“While the tax is a recognition of the growth of the digital market at the expense of brick and mortar establishments, it will be difficult to implement due to the amorphous nature of digital transactions,” noted analysts at KPMG.

Online businesses have become a soft target for government to widen its tax base with the aim of lifting domestic tax revenues.

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