Legislation—the Finance Act, 2020—was enacted in late June 2020 in time to implement tax measures at the start of the government’s calendar on 1 July 2020.
The Finance Act follows the Tax Laws (Amendment) Act, 2020 (TLAA) that introduced what are described as far-reaching changes to the tax law in Kenya. The legislation builds on some implementation gaps under the TLAA, such as concerning the value added tax (VAT) exemption on supplies to projects under special operating framework arrangements with the government and capital gains on the transfer of machinery subject to capital allowance.
The legislation also introduced what are fundamentally different tax concepts in Kenya—including a minimum tax primarily targeting taxpayers in a “perpetual tax loss position,” a digital services tax, and a voluntary tax disclosure programme that provides for a waiver of interest and penalties.
The digital services tax will be payable on income that is deemed to be derived or accrued in Kenya from the provision of services through a digital marketplace. The tax will be “deducted” from resident entities and branches, and will be treated as an advance tax payment, available for setoff against the tax payable for the year of income. The term “digital marketplace” is defined as a platform that enables transactions or the interaction between buyers and sellers of goods and services through electronic means. The rate of the digital services tax will be 1.5% of the gross transaction value and is payable when transferring payment to the service provider. The digital services tax has an effective date of 1 January 2021.
Read a July 2020 report [PDF 1.1 MB] prepared by the KPMG member firm in Kenya
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