The Kenya Revenue Authority (KRA) has taken a significant step to fortify tax compliance and revenue collection: it requested Airbnb for historical transaction data from its Kenyan hosts. This specific request extends from January 1, 2021, through December 31, 2022, with the primary aim being the identification of hosts along with their earnings. In doing so, this process will illuminate potential tax liabilities.
The Irish registered company, Airbnb Ireland UC, holds a pivotal role as the data controller for all Airbnb users in Kenya. Upon KRA’s request, subsequently initiating an exchange of information request to procure specific details about Kenyan hosts from the Irish Tax Authority, also recognized as Irish Revenue, this crucial information is bound by legal obligations. Airbnb has formally been approached by Irish Revenue to share this information with KRA.
This request’s timing stands out: just after President Ruto assumed power in September 2022, Kenya promptly became a signatory to the Multilateral Convention on Mutual Administrative Assistance in Tax. The convention, acting as a facilitator, promotes diverse forms of administrative cooperation between states for tax assessment and collection.
Kenyan Airbnb users whose data this information exchange includes will receive notifications from Irish Revenue. These confirm that their data is set to be shared with KRA, and we expect this proactive step to enable KRA to acquire superior insights into the tax obligations of Airbnb hosts, thereby ensuring the precise collection of platform-based tax revenues.
An Italian judge recently ruled for the confiscation of US$835.5 million from Airbnb, a response to allegations of tax evasion. However, Airbnb’s prudent compliance with Kenya’s request may help them avoid potential conflicts with tax authorities. Prosecutors assert that Airbnb neglected to levy a significant tax on roughly €3.7 billion in rental income, an act they deem as a violation of Italy’s 21% earnings tax obligation for landlords, an accusation that calls their legal standing into question.
As part of a sweeping trend, KRA intensifies its efforts to collect taxes from digital platforms through its data request. In recent communication with taxpayers, KRA assured scrutiny of eCitizen transactions for impeccable alignment with tax returns.
Not coincidental is the timeframe of the data request; specifically, it aligns with a significant event: The Digital Service Tax came into effect in January 2021, an action that outlined a tax collection framework for digital marketplaces. This legislation imposes on all participants within these platforms an obligation to remit 1.5 percent of their gross transaction value.
The law, moreover, allows for provisions: KRA can designate tax agents, individuals responsible for collecting and forwarding the digital service tax. This implies that businesses, even those without a local presence or local registration, KRA may appoint a tax agent to streamline the process of tax collection.
The vast scope of the digital marketplace encompasses a wide array of online services, Airbnb, for instance, which provides on-demand accommodation. Consequently, it should come as no surprise that KRA is now leveraging the Digital Service Tax with an aim to target Airbnb hosts.
Already recognizing that hosts in Kenya are subject to Value Added Tax (VAT) and income taxes, Airbnb plays an active role. The decision of KRA to procure transaction data from Airbnb hosts underscores its adaptability within the constantly evolving digital economy; this move might stimulate other online platforms toward compliance with identical regulatory demands. Such a shift could significantly alter the methods by which Kenya monitors and taxes its online economy.