Kenya has joined Tanzania and Uganda in taxing digital transactions to support its depleted public coffers in an economy weighed down by slowing private sector activities, shrinking revenue collections, growing public debt and increasing expenditure pressures.
The new tax has added more financial pain to households and businesses that started the year with tax relief measures rescinded by the National Treasury.
The Digital Service Tax (DST) which took effect on January 1, was introduced by the Cabinet Secretary for the National Treasury Ukur Yatani through the Finance Act 2020.
“With the fast advancement in technology, many business transactions are increasingly being carried out through digital platforms. In some cases, due to the nature of the transactions, it is difficult to effectively tax the income derived through such platforms,” Mr Yatani said though the Budget statement for the 2020/2021 fiscal year.
“It is therefore necessary to provide a framework that will facilitate taxation of such income. In this regard, I propose to introduce digital service tax on the value of transactions at the rate of 1.5 percent.”
The new tax has imposed a 1.5 percent tax on gross income derived from all services offered through the digital marketplace including downloadable digital content such as mobile apps, e-books and films, and over-the-top services that include streaming television shows, films, music, podcasts and any other digital content.
In Uganda, digital service tax was introduced in May 2018 by the Ugandan government to prevent gossip and broaden the country’s tax base From July 2018, internet users in the country seeking to access social media sites were required to pay the daily duty tax of Ush200 ($0.05).
According to a report by the global human rights group Future Challenges e.V, more than 60 online platforms including Facebook, WhatsApp and Twitter were affected by the tax in Uganda and the country lost nearly 30 percent of internet users between March and September 2018.
Some Internet users resorted to using Wi-Fi in offices and restaurants to avoid the over-the-top (OTT) tax payment.
According to Future Challenges e.V, collection of the social media tax in Uganda hit a shortfall of Ush234 billion ($63 million) in the 2018/2019 fiscal year.
In Tanzania, to curb hate speech and fake news, the government introduced the Electronic and Postal Communications (Online Content) Regulations, 2018, for bloggers and online radio and television services requiring them to pay an annual fee of up to $900.
Under these rules, online content publishers (blogs, podcasts, videos) are required to apply for a license at a fee of Tsh100,000 ($43), pay an initial licence fee of Tsh1 million ($429) and an annual licence fee of Tsh1 million ($429)
Authorities can revoke permits of sites that publish content that is said to encourage or incite crimes.