Why You Will Soon Start Paying More For Netflix, Uber And Other Online Services

Subscription based media including news magazines, streaming of television shows, music and podcasts will now be the subject of value added tax (VAT).

This is after the National Treasury published draft rules to bring the digital market place under the tax net, termed as the Value Added Tax (Digital Marketplace Supply) Regulations, 2020.

The regulations follow the passing of provisions on taxing the digital market place through the Finance Act, 2019 which granted the Cabinet Secretary of the National Treasury with the role of setting taxing modalities.

Subscriptions to popular streaming site Netflix will now be subject to VAT charges as the definition of the digital market place encompasses any businesses making direct transactions with buyers in Kenya irrespective of their country of residence.

“The regulations relate to any supply of a service made over a platform that enables the direct interaction between buyers and sellers of services through electronic means,” note the regulations.

Other businesses targeted in the VAT net include the sale of electronic event tickets, software programs, web hosting services and downloadable digital content.

Transport hailing platforms such as Uber, Little and Bolt will also be subject to VAT charges effectively raising consumer costs of using their services.

Consumers are expected to meet the new tax charges with suppliers submitting a record of all the supplies made in Kenya indicating the value of supplies and VAT deducted.

Failure to file the VAT returns within the prescribed period-the 20^th day of the month following the end of the tax period will attract penalties including restrictions to the access of the local digital market place.

Online businesses have become a soft target for government to widen its tax base with the aim of lifting domestic tax revenues.

Consequently, firms in the digital market place will be the subject of income tax at the rate of 1.5 percent of gross transaction values under the proposed Digital Services Tax included in the Finance Bill, 2020.

In spite of the push to bring digital businesses to the taxation brackets, analyst argue the move is still audacious.

“While the tax is a recognition of the growth of the digital market at the expense of brick and mortar establishments, it will be difficult to implement due to the amorphous nature of digital transactions,” noted analysts at KPMG.-Citizen.