What you need to know about the Digital Service Tax (DST)

When the Digital Service Tax (DST) was introduced on 1st January this year, a lot of people did not quite understand what this tax was about. People thought that the tax would be applicable on everything online. Some of the questions in people’s minds were What does this mean to me as an online shopper? Does it mean that I will have to pay more for my goods? Is it going to be more expensive to start or run my online business? So many questions? This article will shed some light and hopefully answer most of the questions.

But before we go further, where did DST come from?

DST, is a tax that is payable on income derived or accrued in Kenya from services offered through a digital marketplace. It was introduced through the Finance Act 2020.

 A digital marketplace is defined as a platform that enables direct interaction between buyers and sellers of goods and services through electronic means. This breaks the myth of DST solely being after your favorite online content creators.

Charged at a considerably low rate of 1.5 per cent of the gross transaction value, DST is applicable on payments received from the provision of digital services by service providers.

Who does DST target?

This tax is payable by both residents and non-residents who derive or earn income in Kenya through the provision of services on the digital marketplace. For non-residents without no permanent establishment in Kenya (offshore service providers), DST will be a final tax. Off shore digital service providers can comply using the simplified registration framework available on iTax (itax.kra.go.ke), or have the option to appoint a tax representative who will comply on their behalf. The registration guide can be found here.

On the other hand, for residents, DST will be treated as an advance tax to be offset against taxes payable for that year of income. Resident digital services providers do not need to register for DST. They will be required to access their iTax profiles to file the DST return and make payment for the tax due; Between 1st and the 20th of the following month that the digital service was offered. The iTax user guide for the DST payment return can be found on the KRA website.

Services targeted by DST include: downloadable content such as e-books and mobile apps, streaming platforms for music, TV shows, films and any form of digital content. It also covers media-based subscriptions, online ticketing, e-learning and any other service provided via a digital marketplace.

Is DST good for the economy?

The collection of the new digital service tax ensures equity, fairness and objectivity between traditional and new digital methods of doing business. Lack of an ideal taxation mechanism has for a long time seen most businesses in the digital marketplace operate without remitting their fair share of the revenue.

Apart from leveling the ground for businesses, DST will also expand the tax base to a significant extent by raising additional revenue without overburdening taxpayers already in the tax bracket.

Since the tax also targets overseas companies dominating the digital marketplace, its implementation will ensure these enterprises plough back the income they generate from Kenyan customers hence contribute to the growth of our economy.

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