The Finance Act 2019 (through Legal Notice No. 190 of 2020) amended the Value Added Tax Act 2013 (VAT Act) by introducing new measures to tax the digital economy. These measures are a response to the growing realization by policy makers at the National Treasury of the need to widen the tax base and generate additional revenue that has hitherto been out of reach of the Revenue Authority due to the very nature of the transactions, which are initiated and settled electronically.

The term “digital marketplace” is defined in the VAT Act as a “platform that enables the direct interaction between buyers and sellers of goods and services through electronic means.” The Act places the responsibility on the Cabinet Secretary for the National Treasury and Planning (CS) to publish regulations providing for the implementation of the new VAT obligations. The CS has (on 16 October 2020) published the draft Value Added Tax (Digital Market Supply) Regulations 2020 pursuant to section 5(8) of the VAT Act to facilitate public participation.

The key highlights of the regulations are summarized below:

Vatable Goods and Services

The following digital services shall be considered Vatable services under the Regulations:

1.    Downloadable digital content including mobile applications, e-books and films; 

2.    Subscription-based media including mobile applications, e-books and films;

3.    Over-the-top services including streaming television shows, films, music, podcasts and any other form of digital content;

4.    Software programs including software, drivers, websites, filters and firewalls;

5.    Electronic data management including website hosting, online data warehousing, file-sharing and cloud storage devices;

6.    Music and games – Spotify, Tidal etc;

7.    Search engine and automated helpdesk services including customizable search engine services;

8.    Tickets for live events, theatres and restaurants – examples ticketsasa etc ;

9.    Distance teaching through pre-recorded media or e-learning including online courses and training;

10. Digital content for listening, viewing or playing on any audio, visual or digital media;

11. Services that link suppliers to recipients including transport hailing services;

12. Electronic services under section 8 of the VAT Act; and

13. Any other service provided through a digital marketplace as may be determined by the commissioner.

It is a reality that a large number of vendors in the digital marketplace are based in foreign jurisdictions. The regulation refers to such vendors as non-resident digital service providers and requires them to register accordingly with the KRA. The requirement for registration does provide some flexibility by allowing the vendor to appoint a Tax representative to act on their behalf.

The Regulations are only applicable to non-resident suppliers who provide services to Kenyan Consumers. These persons or entities bear the obligation to charge and remit VAT on the sale of goods and services provided. This requirement is however restricted to Business-to-Consumer (B2C) transactions where the goods or services are directly conveyed to the end-consumer. Where such goods or services are conveyed in Business-to-Business (B2B) transactions, the Kenyan business will be liable to account for and remit the VAT as this would be considered an import.

Importantly for compliance purposes, the Regulations do not require non-resident suppliers to issue an electronic tax invoice (ETR). Instead, such suppliers are only required to issue an invoice or receipt showing the value of the goods/services supplied and the VAT amount. This shall inevitably reduce such entities’ compliance costs.

Online Registration Process

The i-tax platform operated by KRA provides the online registration form to be filled. Among the documents that shall be required includes;

1.    the name of the business;

2.    the name, address, telephone contact and email address of the contact person

3.    website of the supplier’s business;

4.    the national tax identification number of the supplier provided in their jurisdiction

5.    any certificate of incorporation or registration of the business; and

6.    any other information required by KRA

After registration and verification by KRA, the supplier is issued with a Personal Identification Number (PIN) for purposes of filing returns and payment of VAT.

Consequences of Non-Compliance

The Regulations proposes to restrict the access of a supplier who fails to comply with its provisions from the digital marketplace in Kenya until such time that the supplier complies with the obligations under the Regulations.

A six months period has been provided from the date of Publication of the Regulations for the Suppliers to register and comply. As the Regulations were published on 16 October 2020, the deadline for registration and compliance shall be on or around 15 April 2021.


These Regulations do not come as a surprise since policy makers and Parliament have long since called for widening of the tax base through taxation of the digital economy. The timing of the publication is also fortuitous coming in the midst of a surge in the prevalence and relevance of the digital economy as a consequence of the restrictions put in place due to the global Covid-19 pandemic. This has led to a massive increase in online interactions and transactions from both local and international vendors and continues to provide a key growth area in global commerce.

The regulations also follow on the heels of the recently launched Digital Economy Blue Print that was adopted by Kenya in 2019 which seeks to address the tax policy on e-commerce. 

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