The Kenya Revenue Authority (KRA) has set its sights on developers of income-generating digital applications (apps) as part of wider plans to rope online businesses into the tax net.
The app developers are staring at tax demands on downloads on their platforms and resultant revenue, the taxman announced Wednesday.
KRA says it will work with the Communications Authority of Kenya (CA) to obtain transactions data by resident and foreign-based app developers doing business in Kenya.
Provision of online platforms for use by third-parties is a taxable supply under the Value Added Tax (VAT) Act 2013, the KRA said Wednesday, saying this would attract the standard 16 percent levy.
The deputy commissioner for corporate policy, Maurice Oray, said owners of the apps should pay VAT on downloads, besides other taxes under Section 3 of the Income Tax Act.
“VAT applies on those apps because you are providing a service which is not zero-rated or exempted,” Mr Oray said.
“If you are a resident here, you are supposed to pay the taxes the normal way. If you are not a resident but you have an app that’s being used here, your tax representative (a requirement under Section 16 of Tax Procedures Act) must pay your VAT and income tax.”
Firms that generate more than Ksh5 million ($50,000) in annual sales are required to register for VAT obligations for supplies, in addition to corporate tax at 30 percent for resident companies and 37.5 percent for foreign entities.
Those generating a maximum annual turnover of less than Ksh5 million ($50,000) are not required to register for VAT, but pay a presumptive tax at the rate of 15 percent of the annual single business permit fee issued by a county government. This could, however, go back to a monthly turnover tax at the rate of three percent of the gross receipts of the business through the Finance Bill 2019 set to be debated by lawmakers in September.
For individuals, income tax ranges from 10 percent on the first Ksh147,580 ($1,400) annual income, rising to 30 percent for income above Ksh564,709 ($5,600).
“Working with the Communications Authority (of Kenya), we should be able to get the data. But we live in a self-assessment period and expect that if you are generating revenue of that much, you self-declare so that you don’t pay extra penalties,” Mr Oray said.
The taxman will, however, have to wait for the National Assembly to ratify the “Multilateral Convention on Mutual Administrative Assistance in Tax Matters”, a treaty that enables it to exchange and get specific data on tax evaders across the world.
The taxman maintains it has invested heavily in intelligent technological systems capable of spying on transactions by businesses and homes.
Online businesses do not, however, have physical addresses or legal structures in most jurisdictions they operate, making it easy to escape the taxman’s noose as well as counties, which issue business permits.
The KRA has singled out taxation of the emerging digital economy, a headache for global revenue agencies, as a major risk to meeting the Ksh6.1 trillion ($6.1 million) target in the three-year period through June 2021.
Uganda in July last year slapped Ush200 ($0.05) tax per day for use of social networking platforms such as Facebook, Twitter and WhatsApp, a move that saw internet subscriptions fall in the first three months of its implementation.
Legislators in France last month passed a law slapping a three percent tax on revenue made in the European country by large internet firms such as Google, Apple, Facebook and Amazon.