Kenya Revenue Authority (KRA) has directed business owners trading on digital platforms to charge Value Added Tax (VAT) on their transactions in a move expected to raise the cost of consumer products sold through the internet by at least 14%.
It means that a product sold for Sh1,000 will now cost Sh1,140. Traders will also be expected to issue digital receipts that are generated by KRA’s registered ETR machines.
Trade through the internet in Kenya, technically known as eCommerce, is estimated to be worth Sh103 billion in 2020, according to global data company Statista.
This revenue is expected to have an annual growth rate of 19.4%, resulting in a market volume of Sh200 billion by 2024.
Kenya’s largest market segments, says Statista, are in electronics and media with a market volume of Sh42 billion in 2020.
“User penetration is 34.6% in 2020 and is expected to hit 51.8% by 2024. The average revenue per user currently amounts to Sh5,500,” data reveals.
The Commissioner Domestic Taxes, Elizabeth Meyo said in a statement that KRA, had noted with concern that some digital business owners had failed to charge VAT as required by law.
“KRA wishes to inform such persons that they are obligated under the VAT Act, 2013 to charge and remit VAT as follows: All the sales made through their digital platforms, the commission charged to the vendors for the use of their digital platforms,” the statement noted.
“All non-compliant traders are hereby advised to comply to avoid penalties and interests on outstanding taxes failure to which appropriate action will be taken in accordance with the law. Where fraud will be detected, appropriate criminal proceedings shall be brought against the offenders,” said the KRA Commissioner.
The Finance Act 2019, sought to clarify that income from digital transactions is VAT payable.
eCommerce has become a key segment of the economy, fuelling micro and small business startups that are likely to boost KRA’s quest for more revenue if the directive is well enforced.