Subscription based media such as podcasts, streaming of television shows, podcasts and music are the new targets for Value Added Tax (VAT)
This follows the National Treasury draft Publication rules to include the Digital Market Place under the tax bracket, termed as Value Added Tax (Digital Market Place Supply) regulations, 2020.
The regulations follow the passing of provisions on taxing the digital market place through the Finance Act, 2019 which gave the Cabinet Secretary of the National Treasury the role of setting taxing modalities.
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The digital market place will bring any business, irrespective of their residence, making direct transactions with buyers in Kenya under one umbrella. This means that even subscriptions to popular streaming site, Netflix, will be subject to VAT charges.
“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.
Other targeted businesses in the digital realm include the sale of software programs, event tickets, web hosting services and downloadable services.
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Taxi hailing services including Uber, Bolt and Little will also be subject to VAT vcharges, which will translate to higher costs for the customers.
Consumers are expected to meet the new VAT charges as suppliers will submit their records of all supplies made in Kenya indicating the value and applicable VAT deducted.
Failure to file the returns by the 20th day of the month following the end of the tax period will attract penalties which include restriction of access to the digital market place.
Under the proposed Digital Services Tax included in the Finance Bill 2020, the digital market place will be the target of income tax at the rate of 1.5 percent of gross transaction values.
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The digital market place has become a target for the government as it looks to widen its tax base with the aim of increasing domestic revenue.
Analysts argue that the push to bring the digital market place under the tax bracket is however, audacious.
“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.
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