A. Introduction
Digital Service Tax (DST) is income accruing from a business carried out over the internet or an
electronic network including through a digital marketplace.
It is worth to note that this definition has been expanded to clear the uncertainty that was there
previously on whether non-resident providers of electronic services who were not undertaking
business through a ‘’digital marketplace’’ were within the scope of digital service marketplace.
It is now clear that any income accrued in or derived from Kenya by a non-resident person in
relation to services provided over the internet or an electronic network is subject to Digital service
tax in Kenya.
Digital marketplace means an online or electronic platform which enables users to sell or provide
services, goods or other property to other users.
This definition clarifies the fact that an online platform constitutes a digital marketplace if the
users can sell or provide goods and services to other users through such a platform.
B. Application of Digital Service Tax
DST is payable by a non-resident person whose income from the provision of services is derived
from or accrues in Kenya through a business carried out over the internet or an electronic network
including through a digital marketplace.
Digital service tax was first introduced in the Income Tax Act by the Finance Act 2019 and
furthered by the Finance Act, 2020. All along, digital service tax applied to both resident and non-
resident persons.
This amendment curbs the increased cost of doing business in Kenya by resident persons by
exempting them from DST compliance requirements.
Previously, Income Tax Act provided that DST was an advance tax for resident persons and non-
resident persons with permanent establishments in Kenya, the cash flow implications, and costs
of administration and compliance that come with DST burdened the resident companies.
C. Payment of Digital Service Tax
All persons that are subject to digital service tax should submit a return and pay the tax due to
the Commissioner on or before the twentieth day of the month following the end of the month in
which the digital service was offered.
Usually, services provided through electronic means lead to multiple transactions daily. It would
therefore be problematic to account for DST at the time of payment thus the justification for
remittance of DST on or before the twentieth day of the month following the end of the month in
which the digital service was offered.
D. Exemption to Digital Service Tax
These exemptions are enshrined in subsidiary legislation, Digital Service Tax Regulations. The
Finance Act which is the Principle law categorises them as indicated below:
i. Business of transmitting messages
Act has exempted from DST, income that is derived from Kenya by non-resident persons who
carry on the business of transmitting messages by cable, radio, optical fibre, television
broadcasting, Very Small Aperture Terminal (VSAT), internet, satellite or by any other similar
mode of communication.
This is because corporate tax is applicable on such gross income. If Digital Service Tax were to be
applied to these persons, it would lead to double taxation.
ii. Income that is subject to withholding tax regime
The Act has also exempted from DST, income that is subject to tax through the withholding tax
regime such as, management or professional fees, royalties, interest payments, dividends, rental
income, winnings, pension and insurance or reinsurance premiums.
Application of Digital Service Tax became effective on 1st July 2021.
E. Conclusion
Digital service tax is expected to generate increased revenue for the government especially now
that there are increased digital service providers. The exemption of residents from payment of
this tax will reduce administrative procedures and cost of running a business in Kenya.
Article by Ann Yvonne Muriithi
This article is intended for general knowledge only. For substantive legal advice on this, please
contact us through cgmbugua@lexgroupafrica.com or amuriithi@lexgroupafrica.com
