The Kenya Revenue Authority (KRA) could go after customers of global digital service providers that fail to pay the new Significant Economic Presence (SEP) tax, as the taxman moves to tighten the noose on evaders.
According to the KRA, local customers of tech companies without a presence in Kenya, such as e-commerce giant Amazon and movie-streaming platform Netflix, could be appointed agents to recover unpaid taxes by these foreign firms.
“Section 42 [of the Tax Procedures Act] allows the commissioner, as a last resort, to appoint a bank that processes payment, or even the customer can be appointed to withhold a certain amount,” said Nickson Omondi, the manager in charge of KRA’s Digital Economy Tax office.
The section gives the KRA the power to require third parties, including banks, agents, related parties, and customers, to withhold or deduct taxes owed to a taxpayer and remit them to the commissioner. If they fail to do so without reasonable cause, they can be held personally liable.
The SEP, which replaced the Digital Service Tax (DST), is payable by companies without a Kenyan subsidiary that conduct business in the country via a digital marketplace, which makes tax recovery difficult in the event of non-payment. The DST was charged at 1.5 percent of the gross turnover.
“It is not unique to Kenya. These tools can be used in other countries,” said Mr Omondi, adding that Kenya also has a robust exchange of information with other jurisdictions, which can help them to collect taxes.
Kenya introduced the DST in 2021 for non-resident digital service providers, but replaced it with SEP tax in December last year.
The SEP tax is levied on non-resident digital service providers by deeming 10 percent of their turnover as profit, to which a 30 percent tax rate is applied — effectively three percent of gross turnover.
Seven African countries have introduced digital service taxes or equivalent measures —Kenya, Tanzania, Uganda, Nigeria, Zimbabwe, Tunisia, and Sierra Leone—with Tanzania imposing a two percent DST on non-residents.
Uganda applies a five percent DST, while also taxing related-party digital supplies via a 15 percent withholding rule.
Nigeria opted to forego a flat DST in favour of taxing profits under corporate income tax rules for SEP.
Zimbabwe charges a five percent DST on gross digital revenues, while Tunisia applies a three percent DST on a broad range of digital services, and Sierra Leone levies 1.5 percent.
These regimes generally require non-resident platforms to register, file and remit, and are grappling with enforcement, scope definitions, and alignment with evolving Organisation for Economic Co-operation and Development digital tax reforms.
Global tech giants such as Amazon, Microsoft, Netflix, Facebook, and Alibaba operate in Kenya through the internet without a physical presence, and so do not pay income tax under traditional permanent-establishment rules.
Data from the United Nations Conference on Trade and Development places Kenya as the third-largest e-commerce market in Africa, behind South Africa and Nigeria.
Ride-hailing services offered by Estonian-based Bolt and US-based Uber are some of the companies already paying SEP tax.
The other tech giant that will be paying is the global subscription-based streaming service Netflix, as an increasing number of Kenyans pay to use it to stream movies.
