Digital tax defaulters to face huge fines instead of earlier recommendations to be barred

Foreign and local companies that fail to comply with Kenya’s digital tax requirements will now face huge fines instead of earlier recommendations that indicated they could be barred from operating in the country. According to new regulations published by the treasury cabinet secretary, Kenya seems to have softened its stance from earlier recommendations that could have restricted any foreign or local company that failed to comply with new digital tax requirements.

Companies that fail to remit digital taxes amounting to 1.5 percent and VAT will now face fines rather than being blocked from operating in the country. In the new proposals that are expected to come into effect starting January 1, 2021, firms that don’t comply with the stipulated taxes will face cash penalties equivalent to double the amount expected in taxes or Ksh. 100,000 fines. This is according to disciplinary measures outlined under the Tax Procedure Act Kenya.

In the provisions, an entity that fails to comply with the regulations shall face penalties prescribed under the Act or the Tax Procedures Act, 2015. If the current regulations are anything to by, this will effectively mean the government has relaxed earlier proposals in a gazette notice dated September 25, 2020. In addition, the government has also dropped earlier requirement to have digital firms register with the Kenya Revenue Authority (KRA) within 30 days, they’ll now be expected to register within six months.

Other provisions include having foreign firms availing details for registrations such as their official websites, certificate of incorporation, tax identification number issued to the supplier, postal address, name of the person handling the tax affairs of the supplier, email address and phone numbers.

The new regulations were unveiled in the Finance Act 2019 to increase KRA’s scope of colleting revenues from all perceived businesses including those without a physical presence in country but engaging in e-commerce.

There have been speculations on how the government intents to enforce these regulations given that most of targeted companies such as Netflix do not have a presence in the country. Rumors doing rounds also indicate that digital tax may not impact American companies after all, with an imminent trade deal between the two countries.

Taxable downloadable content includes mobile apps, e-books, movies, music, games and tickets. The government is also targeting subscription-based media such as News, magazines, journals as well as viewable content and audio.

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