Many young people (and businesses) who were thriving - and not paying revenue - in the online space feel the move to tax the digital economy is a blow. This is largely because, while taxing online business is par for the course in Western economies, in the developing world it is regarded on the street as something of a hazy area.
Two years ago, Daniel Shirima, a 20-year-old, set up an online TV and Radio station in Majengo Slums, Nairobi, to “enlighten and dissuade the youth in the neighborhood away from criminality”.
“We have about 20,000 subscriptions already and we hope for more, although we have not yet monetised the platform,” says Shirima who, like many other content producers, are now pondering the implications of the Digital Services Tax to their fledgling businesses.
Terry Wangeci, the founder of Dermijoy Skincare, feels the same way. Dermijoy is a skincare brand that uses online platforms to sell its products and was one of the winners of the 2019 incubator Women in Tech project initiated by Standard Chartered in partnership with the @iBizAfrica Centre at Strathmore University.
“Although the digital space will remain attractive, we must make sure the funds are used efficiently. For instance, the coffee board of Kenya has a fund from which some money goes to research and provides support to farmers,” says Wangeci. “The tax should be ploughed back to the digital space to improve it. We have seen at the onset of Covid 19 how the education sector suffered in some parts of the country due to no internet connectivity, we can start here,” adds Wangeci.
The DST will be applied at 1.5 percent on income accrued from all services provided through electronic means to a user located in Kenya. Both residents and non-residents who derive or earn income through the digital marketplace are liable to pay the tax. Downloadable content such as streaming platforms for music, e-books, TV shows, mobile apps, films, and any form of digital content are some of the services targeted by the tax.
The gazetting of the DST regulations fortifies the digital tax in Kenya as nations globally watch the developments in this area. Concerns about the exact scope of the transactions remains a worldwide challenge.
The Organization for Economic Co-operation and Development (OECD), has released a proposal recommending that revenue limits be used to determine whether an entity has built substantial economic activities and made taxable income within a given jurisdiction. For instance, countries like France, already implementing the digital services tax, have relied on revenue thresholds to determine a taxable presence. Also, in question is the mechanism through which the Kenya Revenue Authority (KRA), will collect and administer the tax.
In a paper on the tax, Deloitte, tax experts in Kenya wrote, “Imposing DST on all digital services irrespective of the threshold is likely to result in undesirable implications especially for persons under the Turnover Tax Regime and minimum tax, and whose primary income is derived from provision of digital services.”
For Shirima, and many other content producers in Kenya, the digital space offers attractive platforms to reach various audiences. The ICT, Innovation and Youth Affairs Cabinet Secretary Joe Mucheru’s recent remarks, that government plans are underway to amend the Bill to ensure startups are protected from the levy, offer a ray of hope in a country where the youth unemployment rate stands at 98%.
Covid means millions have lost their livelihoods. The digital space offers opportunities to those who have lost their livelihoods. The government, therefore, while eager to raise revenue, must handle the DST regulations with care to ensure it does not turn a bad situation into its citizen's worst economic nightmare.
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