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Finance act-202 VAT amendments on digital market place

The Finance Act 2022, amended the VAT on the digital economy by redefining the terminology digital marketplace. In addition, the Act deleted the provision of accounting for reverse VAT for business-to-business transactions in the digital economy under section 10 of the VAT Act 2013.

Digital marketplace supply is defined by the VAT Act 2013, as the supply of goods or services made on a digital marketplace. This could be either between business-to-business transactions from export country to consumer country or business to consumer.

Any foreign company transacting on taxable supplies made through a digital marketplace will be required to charge, file, and remit VAT under regulation 3 when supplied in Kenya. However, when the supply under regulation 3 was made between B2B transactions, the provisions of section 10 initially applied for reverse VAT before it was later deleted by the Finance Act 2022. An organization in business was previously required to file VAT returns on the taxable supply transacted on the digital marketplaces and to advise the appropriate export nation supplier that it was not required to account for tax in Kenya. This section 10 has since been deleted. In this context, reverse Vat is no longer applicable for importers of the digital economy.

A foreign supplier of digital supplies to Kenyan consumers is obliged to apply for taxation using a streamlined tax registration process. These supplies would include B2B or B2C transactions. These transactions should be declared and tax paid at a rate specified in section (5)2b. As long as the supplier issues an invoice or receipt outlining the value of the supply and the amount of tax withheld from it, no electronic tax invoice will be required under these transactions.

In this regard, any company or individual transacting on the digital marketplace should account for both DST and VAT on taxable digital services. It is worth noting that tax on digital services or goods was introduced back in the year 2019.

In conclusion, importers of digital services will no longer be required to submit VAT returns for services purchased via a digital marketplace. A non-resident digital service provider or marketplace provider’s tax representative, as well as the provider of the digital marketplace, will be responsible for paying VAT.

Assuming that the consumption of this supply took place in Kenya, the VAT would be applicable for the e-commerce’s Business to Consumer (B2C) transactions. In addition, importers of the digital services can then claim the input VAT paid by their non-resident digital providers. Kindly note, failure to pay VAT from the digital marketplace will account for a VAT penalty of 5% or 10,000 whichever is higher, and accrue interest at 1% per annum on simple interest the time the tax remains due.