The Kenyan E-commerce platform has experienced an unprecedented growth in the last decades following the discovery of internet. According to the 2019 World Bank economic update, Kenya has seen its Information and Communications Technology (ICT) sector grow at an average of 10.8 per cent annually since 2016 thus becoming a significant source of economic development and job creation.

Additionally, the digital developments saw the country ranking third among African countries with the highest bit coin usage in 2019 with a population that has a remarkably high appetite for online betting, purchases and borrowing.

Informed by these recent trends the government of Kenya jumped onto the bandwagon of countries that introduced a digital tax such as India and France in a bid to widen its tax bracket.

This led to the introduction of a provision for taxation of income from a digital market place through the Finance Bill 2020. Emphasis has been placed on the same following the Cabinet Secretary’s for the National Treasury, Ukur Yatani pronouncement during the budget reading on the 11th of June 2020. The tax targets international internet giants that include Amazon, Alibaba, and Netflix as well as local firms, including startups.

When enacted into law, the digital service transactions will henceforth attract a tax rate of 1.5 per cent on gross digital value of transactions. A registered person will be required to submit a return in the prescribed form and remit the tax due, in each tax period, to the Commissioner on or before the 20th day of the month following the end of the tax period.

Furthermore, an additional charge for VAT has been proposed on the digital market services subject to a rate of 14% under the Value Added Tax (Digital Marketplace Supply) regulations, 2020.

The ins and outs of the new tax

According to section 4 of the Finance Act, the Income Tax Act was amended to include ‘income accruing through a digital marketplace’ as taxable income. Likewise, section 18 of the Act expands the VAT Act to be ‘applicable to supplies made through a digital marketplace’.

A digital marketplace as per the act is defined as ‘a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means.’ This implies that all entities that generate income through a digital platform are captured.

The taxable supplies made through the digital market place shall include electronic services under Section 8(3) of the Act and include but are not limited to the following;

  • Downloadable digital content including downloading of mobile applications, e-books and movies; Subscription-based media including news, magazines, journals, streaming of TV shows and music, podcasts and online gaming;
  • Software programs including downloading of software, drivers, website filters and firewalls;
  • Electronic data management including website hosting, online data warehousing, file-sharing and cloud storage services;
  • Supply of music, films and games;
  • Supply of search-engine and automated helpdesk services including supply of customized search-engine services
  • Tickets bought for live events, theaters, restaurants etc. purchased through the internet
  • Supply of distance teaching via pre-recorded medium or e-learning including supply of online courses and training
  • Supply of digital content for listening, viewing or playing on any audio, visual or digital media
  • Supply of services on online marketplaces that links the supplier to the recipient, including transport hailing platforms
  • Any other digital marketplace supply as may be determined by the Commissioner.


In order for a person or business to supply taxable services through a digital marketplace, they shall be required to register for VAT in Kenya where:-

  1. the digital marketplace supplies are supplied by a person from a place of export country to a recipient in Kenya in a B2C transaction;
  2. the person is conducting business in Kenya as provided under Section 8 (2) of the Act; and any of the following circumstances are present: (i) the recipient of the supply is in Kenya; or
  3. the payment made to the supplier in the export country, for the supply of digital marketplace supplies, originates from a bank registered or authorized in Kenya, under the Banking Act, Cap 488; or
  4. The recipient of that digital marketplace supply has business, residential or postal address in Kenya.

Moreover, a person from an export country who makes B2C supply   of services   to a    recipient who is in Kenya shall be required to register for VAT through a simplified VAT registration framework as provided under these regulations and shall declare and pay VAT at the rate specified in Section.

The place of the digital market place shall be deemed to have been made in Kenya if the recipient is in Kenya, the credit card information and bank account details of the recipient of the digital supplies in Kenya and or the proxy including the billing or home address or access proxy including Internet Proxy address, mobile country code of SIM card of the recipient is in Kenya.

Implications of the tax to online traders and customers

The introduction of the digital tax has elicited mixed reactions among Kenyans whose business operations depend largely on the online market place.

For instance, some of the giant taxi-hailing apps have warned the government that such a move could result in trade wars and retaliatory tax actions putting it into collision with Western governments and multinationals.

In the case of France which imposed digital tax on big tech multinationals requiring them to pay 3% tax on total annual revenue generated, a trade war emerged with the US as the later perceived this as double taxation of its companies and their partners.

Similarly for India, the US conducted an investigation and capped the number of Indian foreign workers following the introduction of the digital tax which was a huge blow for India.

Additionally, there are no clear guidelines as to how this tax will be applied and who will bear the tax burden. In the event that the VAT provision intends to place incidence on the consumers then the tax may end up stifling innovation and the incentives witnessed by the digital marketplaces. As it stands, most digital marketplaces only facilitate business transactions by connecting buyers and sellers and do not charge transaction fees. This will in turn make online goods costly because the digital businesses will pass the charges to consumers.

Likewise, there is no clear timeline as to when the regulations governing the implementation of the digital tax shall be published, posing a practical challenge to implementation of the provisions.


It is important to note that the taxation of the digital economy is not a novel concept in the world and it was just a matter of time before Kenya followed suit.

While the Cabinet Secretary of National Treasury and Planning has proposed to make regulations to provide mechanisms for its implementation, there needs to be a well-defined framework that will help in the implementation of the taxation of online businesses.

Additionally, its implementation should borrow from international best practices and data protection laws to ensure that the new tax does not burden the taxpayers and bring about trade wars.

For more information regarding this alert, please contact;

Michael Kimani

Advisory Partner

t +254 715 248882 | +254 733 533449

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