Kenyans were treated to the news of the newly signed Finance Bill 2020 by President Kenyatta. The bill consists of proposed amendments and number of statutes including The Income Tax Act, The Value Added Tax Act, 2013, The Excise Duty Act, 2015 and The Tax Procedures Act, 2015.

The most significant detail about the new law would be the levy on digital services. With this, the country’s digital sector will now a new 1.5% tax imposed on all digital transactions. This will then see online businesses pay tax on all income sourced in the state. This will be monitored by KRA’s new special unit tasked with tracking the digital revenues.

Additionally, the digital service tax will be payable exactly at the time of transaction of payment to service providers.

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The law is also meant to target companies that operate in the country without a presence but still create value and income within the government’s jurisdiction.

As reported earlier, the bill was introduced on the basis of the president’s measures against COVID-19 that were announced mid-March. This included the reduction of VAT from 16% to 14% that saw telcos and ISPs reduce their subscription and top-up charges.

Of course, the draft did go through a number of alterations since the first introduction.

However, what is highly likely to spark controversy is the new digital levy. The online sales industry is one that has been growing at an extraordinary in the Kenyan market. One of the main reasons for that was the lack of taxation on these businesses thus low costs of operation.

It will be interesting to see how the KRA gets to track all this and boost tax collection come Jan 2021 when the tax takes effect.