The government, through the ministry of ICT is seeking to exempt local ICT startups from the Digital Service Tax (DST) through an amendment to the Finance Act 2020.
ICT, innovation and Youth Affairs Cabinet Secretary Joe Mucheru says the recently introduced Digital Service Tax is meant to tax multinationals operating in the country who do not pay corporate tax and talks are on with local players on how to exempt local entrepreneurs from the levy.
There was an outcry from local ICT players after the Finance Act 2020 came into force, introducing the Digital Service Tax which came into force on 1st January 2020.
The Digital Service Tax applies to companies with a permanent establishment in the country and levies services at the rate of 1.5 percent of the gross transaction value.
Treasury CS Ukur Yattani introduced the Digital Service Tax during the reading of the 2020/2021 budget on June 11, 2020, indicating that a 1.5% DST would apply on the value of transactions conducted by online businesses.
The Kenya Revenue Authority later defined a digital marketplace as: “a platform that enables direct interaction between buyers and sellers of goods and services through electronic means.”
The digital service tax will be charged on; the payment received for services and the commission or fee paid to the digital marketplace provider for the use of the platform.
Following an uproar from tech entrepreneurs, the government now says the Digital Service Tax is meant to widen the tax bracket from online businesses that have experienced sharp growth during the pandemic.
ICT Cabinet Secretary Joe Mucheru says the government plans to amend the practitioner bill currently in the National Assembly to ensure startups are protected from the levy.
ICT players also want the government to draft policies that would create a conducive business ecosystem for ICT startups in the country.
Entrepreneurs have been advised to take advantage of the government’s move to automate most of its services and come up with appropriate innovations.