The Kenya Revenue Authority (KRA) has announced plans to introduce VAT tax obligations for app developers trading in the country.
The taxman made these plans public on Wednesday 14 August, reports Business Daily. VAT, which currently stands at 16% of the value of the commodity, will be introduced to all apps downloaded in the country that generate income.
This targets apps with in-app purchases, apps that sell goods and services and apps that require users to pay before downloading. “VAT applies on those apps because you are providing a service which is not zero-rated or exempted,” said KRA deputy commissioner for corporate policy, Maurice Oray.
KRA has its eyes set on both local and international developers. “If you are a resident here, you are supposed to pay the taxes the normal way. If you are not a resident but you have an app that’s being used here, your tax representative (a requirement under Section 16 of Tax Procedures Act) must pay your VAT and income tax.”
The taxman plans to work with the Communications Authority of Kenya to keep an eye on all digital transactions in Kenya to facilitate the collection of the taxes and nab tax evaders.
“Working with the Communications Authority, we should be able to get the data. But we live in a self-assessment period and expect that if you are generating revenue of that much, you self-declare so that you don’t pay extra penalties,” Mr Oray added.
Kenyan developers recently got Google Merchant accounts which allow them to earn from their apps. This news has already triggered an avalanche of reaction from the developer community, with some welcoming the move as a sign of positive growth that will propel the industry further but a good number up in arms feeling burdened by what they term as “heavy tax obligations.”
On top of the VAT, developers will also be required to pay income tax for their firms as it is required by law. The VAT obligation, however, may hit users harder than developers because if the current business practice is anything to go by, merchants always push the burden of VAT to the customers, which may essentially make apps more expensive in Kenya.
The plans are still far from being implemented as the taxman will have to await ratification of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (a treaty that enables it to exchange and get specific data on tax evaders across the world) from Kenya’s National Assembly before they can go after developers for these new taxes.