The Kenya Revenue Authority (KRA) has reported steady digital service tax collection growth in the past year. In the six months leading to December 2022, the agency collected Sh174 million, putting it on pace to beat the full-year total of Sh241 million recorded in the year ending June 2022. The revenue collected from digital service providers, including US tech giants such as Google, Netflix, Meta, Twitter, and Microsoft, is expected to surpass Sh300 million by June 2023.
The potential for growth in this area is high as the value of e-commerce in Kenya continues to rise. As more businesses register for digital service taxes, the revenue is expected to increase even further. KRA reported that it had surpassed its target of writing 50 different companies in the financial year ending June 2023, with 64 businesses now on its DST taxes books halfway through the year. In total, the taxman has registered 178 firms under the tax head.
According to the Income Tax (Digital Service Tax) law, all firms that sell services through the internet are mandated to pay a flat rate of 1.5% on the value of their digital offerings, in addition to the standard 16% VAT. These taxes apply to a wide range of digital services, including e-books, movies, dating sites, music, games, and subscription-based media such as news, magazines, and digital content.
In the initial half-year period following its implementation on January 1, 2021, the Kenya Revenue Authority (KRA) collected Sh42 million in digital service taxes. By the end of the financial year ending June 2022, the collection had grown to Sh241 million. The Kenyan Treasury proposed increasing the tax to 3% of the total value of online transactions in the financial year starting July 2021 through the Finance Bill 2022. However, the proposal was rejected by the parliament.
Despite the modest rate of 1.5 per cent, KRA Digital Service Tax lead Nickson Omondi stated that the collections are small. However, the agency expects revenue to go up once the rate is increased, given the growth in e-commerce in the country and the increasing number of registered businesses under the digital service tax head.