The online mode of doing business has brought with it taxation challenges. Kenya along with the rest of the world is moving away from the traditional brick and mortar concept of doing business. Digital technology has enabled businesses to carry on with their trade online. Kenya’s digital tax laws – the Income Tax (Digital Service Tax) Regulations, 2020 and the Value Added Tax (Digital Marketplace Supply), 2020 went into effect earlier this year in order to address the taxation challenges arising from the digital world. Below is a look at what tech-giants have been doing in a bid to comply with the Regulations.
Earlier this year, a number of people received email updates from Google stating that they will start taxing 16% for Google Play Store purchases made in Kenya from April 2021. This was to be done in accordance with the tax changes implemented by the Kenya Revenue Authority with effect from January 2021.
In particular, the email noted that as a result of tax changes in Kenya, Google will be responsible for determining, charging and remitting 16% VAT for both Google Play store paid app and in-app purchases made by customers in Kenya. The applicable taxes for purchases made by Kenyans will then be sent to KRA.
Google will do the deduction automatically therefore warranting no action on the same from the mobile app users or developers. As a result, one will not be required to calculate and deduct VAT for Kenya as they deal with customer’s purchases. The tech giant will also be using VAT-inclusive pricing in Kenya. This means that the prices shown will include all taxes, irrespective of the location of the business
Youtubers to Pay more
On another note, Google will be withholding US taxes on earnings generated from viewers in the US come June 2021. This will be in a bid to fulfil their obligations under Chapter 3 of the US Internal Revenue Code to collect tax information from all monetizing content creators outside US and deduct taxes in instances where they earn income from viewers in the US.
Google has been urging people to submit their tax information on Ad sense by May 31 2021. This would help to determine the correct amount of taxes to be deducted. Where the tax deductions will be applicable, taxes on You-Tube earnings from viewers in the US from ad views, YouTube Premium, Channel Memberships, Super chat and super stickers will be withheld.
A content creator who provides their tax information will get a withholding between 0-30% solely based on the earnings generated from viewers in the US. The withholding tax rates will vary per creator as the amount deducted is dependent on whether the country of the creator has a tax treaty relationship with the US. Where there is no treaty, 30% of the money made from US viewers will be withheld. Those who fail to submit their tax information at all risk a deduction of 24% of their total earnings worldwide.
Currently, Kenya does not have a treaty with the United States, thus the content creators in Kenya will face a deduction of 30% of the earning derived from US viewers.
Facebook has not been left behind in the tax deductions and as from 1st April 2021, Facebook Ads in Kenya are subject to 16% VAT. According to a notice issued by Facebook, to its Kenyan business partners the VAT will be applicable to advertisers whose ‘Sold To’ country on their business or personal address is set to Kenya and who haven’t confirmed that they’re advertising for business purposes.
The VAT will be charged on the ads where one is not purchasing Facebook ads for business purposes. As a result of this, the Facebook notice explains that since “VAT is added on top of charges, you won’t reach your billing threshold faster, but you may be charged more than your billing threshold amount.”
When advertising, one is required to confirm in the Ad Accounts Settings of Ads Manager whether they are advertising for business purposes and if they are responsible for self-assessing and paying VAT in accordance with Kenya’s tax laws. According to Facebook, advertisements for business purposes will not attract an addition of VAT to your purchase of Facebook Ads. However, where one pays for the Facebook ads with a manual payment method, VAT will be accounted for and applied when the ad account is funded to determine the total balance available.
Going forward, Kenyans should expect more similar directives on tax payments from digital companies such as Netflix and Spotify among others.