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Kenya:- Kenya Finance Bill 2019:- Taxation of digital economy

This is a very hot topic now , because previously we had the authority
looking at permanent establishment whereas now in the digital space there
is no physical presence to work with

Discussions are moving around whether to use the value creation model or
the users model
One looks at where the value to be taxed is created whereas another looks
at where the number of users are located and proportion it accordingly

It’s also interesting to note that VAT as proposed in the bill places the
incidence on the consumer and may end up being more oppressive on the
digital economy as opposed to just raising revenue

Best Regards,
Vallarie Yiega
Researcher , Committee of Fiscal Studies

On Wed, Aug 7, 2019, 20:14 Ephraim Percy Kenyanito via kictanet <
kictanet@lists.kictanet.or.ke> wrote:

> *Kenya:-* Kenya Finance Bill 2019:- Taxation of digital economy
>
> In order to tap into the fast growing digital economy, the Bill proposes
> to tax income accruing through a digital marketplace by introducing a new
> charging section.
>
> Although this is a welcome move to increase the tax base, it is still not
> clear how international digital platforms with no physical presence in
> Kenya will be taxed. In this regard, it is expected that special rules may
> soon be formulated detailing the operational mechanics of how taxation of
> the digital economy will be undertaken. (It can be found here:-
> www.parliament.go.ke/sites/default/files/2019-07/Finance%20Bill%2C%202019_compressed.pdf
> )
> Below are the relevant portions of the proposed laws:
>
>
> –
>
> Section 3: Section 3 of the Income Tax Act is proposed to be amended
> by inserting the words highlighted:
> –
>
> (1). Subject to, and in accordance with this act, a tax to be known
> as income tax shall be charged each year of income upon all the income of a
> person, whether resident or non-resident, which accrued in or was
> derived from Kenya
> –
>
> (2). Subject to this Act, income upon which tax is chargeable under
> this Act is income in respect of
> –
>
> A. Gains or profits from:
> –
>
> Any business, for whatever period of time carried on;
> –
>
> Any employment or services rendered;
> –
>
> Any right granted to any other person for use or occupation
> of property;
> –
>
> B. Dividends or interest
> –
>
> C. a pension, charge or annuity; ii. Any withdrawals from, or
> payments out of, a registered pension fund or a registered provident fund
> or a registered individual retirement fund; and (iii) any withdrawals from
> a registered home ownership savings plan
> –
>
> D.income chargeable to tax includes income accruing through a
> digital marketplace
> –
>
> e. ‘Digital marketplace’ means a platform that enables the
> direct interaction between buyers and sellers of goods and services through
> electronic means
> –
>
> E. AN amount deemed to be the income of any person under this
> Act or by rules made under this Act;
> –
>
> F. Gains accruing in the circumstances prescribed in, and
> computed in accordance with, the Eight Schedule
> –
>
> G. Subject to section 15(5A), the net gain derived on the
> disposal of an interest in a person, if the interest derives twenty per
> cent or more of its value, directly or indirectly, from immovable property
> in Kenya; and
> –
>
> H. A natural resource income
> –
>
> Section 5 of the Value Added Tax Act, 2013 is proposed to be amended
> by inserting the words highlighted
> –
>
> 1. A tax, to be known as the value added tax, shall be charged in
> accordance with the provisions of this Act on –
> –
>
> (a). A taxable supply made by a registered person in Kenya
> –
>
> b. The importation of taxable goods; and
> –
>
> c. The supply of taxable services
> –
>
> 2. The rate of tax shall be:
> –
>
> A. in the case of zero-rated supply, 0% or
> –
>
> In the case of goods listed in section B of the first schedule 8%
> –
>
> In any other case, 16% of the taxable value of the taxable
> supply, the value of imported taxable goods or the value of a supply of
> imported taxable services.
> –
>
> …7. The provisions of subsection (1) shall be applicable to
> supplies made through a digital marketplace
> –
>
> 8. For the purposes of this section, a ‘digital marketplace’ means
> a platform that enables the direct interaction between buyers and sellers
> of goods and services through electronic means
>
> —
> Best Regards,
> Ephraim Percy Kenyanito
> Digital Program Officer
>
>
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