The World Bank has encouraged Kenya in its attempts to extend the reach of the taxman in the online market. When obtaining funding from foreign sources is difficult, the lender claims the rules are a step forward in the nation's effort to increase the size of its tax base and boost domestic revenue collection.
The introduction of Value Added Tax (VAT) on digital goods and the introduction of withholding tax on financial derivative gains by non-residents, among other measures, are expected to contribute to the realization of 0.7% of GDP, or just over Ksh93.6 billion ($665.25 million), in additional tax revenue by 2024, according to the multilateral lender.
The Value Added Tax (Digital Marketplace Supply) Regulations, 2020 were released by the Treasury on October 9, 2020, and were presented to the National Assembly on February 16, 2021. The regulations made the VAT collection operational.
“The government issued new VAT regulations on supplies through the digital marketplace (Electronic, Internet Digital Marketplace Supply) by providing the interpretation, scope, simplified registration framework, appointment of tax representatives, place and time of supply, accounting for and payment of tax, claim for input tax and penalties,” the World Bank states.
“These will complement the package of reforms that the government is undertaking to expand the revenue base and raise compliance by preventing evasion, corruption, and money laundering,” the statement by the bank adds.
The World Bank has also praised the nation's efforts to streamline its Excisable Goods Management System (EGMS). The Kenya Revenue Authority (KRA) launched EGMS in 2012 with the goal of increasing the country's excise tax collection by enhancing product traceability and eliminating illegal goods.
A lot of attention has recently been paid to KRA's Ksh4.6 billion ($32.69 million) five-year deal with SCIPA Security Solutions for the delivery of excise stamps.
“The government has also issued EGMS regulations to amend the provisions concerning excise stamps on excisable goods, exemption from excise stamps, and disposal of forfeited and seized goods. To streamline implementation, excisable goods required to have excise stamps are now listed in the first schedule of the EGMS regulations. The amendments will promote fair administrative justice by introducing a new provision for a notification to the owners of seized or forfeited goods before disposal, as well as widen the provision on the application for license or registration and the minimum specifications for metering, measurement, and monitoring devices,” the Bank notes.
The government wants to raise Ksh2.5 trillion ($17.77 billion) from regular revenue in the fiscal year 2023–2024, which would put further strain on KRA.
The Finance Act of 2023 included a Digital Assets Tax at a rate of 3.0% of the gross fair market value consideration received or receivable at the time of exchange or transfer of a digital asset, such as a cryptocurrency, to assist in achieving the ambitious revenue objectives.