Kenya has joined Uganda and Tanzania in taxing digital services 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 Digital Service Tax (DST) which took effect on January 1, was introduced by Kenya’s 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 through the Budget statement for the 2020/21 financial year.
It is therefore necessary, he added, to provide a framework that will facilitate taxation of such income, proposing the introduction of the digital service tax on the value of transactions at the rate of 1.5 per cent.
The new tax has imposed a 1.5 percent tax on gross income derived from all services offered through the digital marketplace including downloadable 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 to prevent “gossip” and broaden the country’s tax base.
From July 2018, Internet users in Uganda seeking to access certain social media sites are required to pay the daily duty of Shs200.
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 forcing the country to lose nearly 30 per cent of Internet users between March and September 2018.
Some Internet users resorted to using virtual protocol networks and Wi-Fi 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 Regulations, 2018, for bloggers, online radio and television requiring them to pay an annual fee of $900.