The Finance Bill 2019 (The Bill) was tabled together with the budget speech by the Cabinet Secretary for Treasury (CS) for the fiscal year 2019/2020. We have analysed the Bill, providing insights into the implications of the various proposed changes.

Taxation of the Digital Economy

The Bill seeks to amend Section 3 of the ITA to include income accruing from a digital market place as income chargeable to tax in Kenya. A digital market place is defined as “a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means”.

This has been in a bid to align Kenya to Action 1 of BEPS (Base Erosion and Profit Shifting) Action Plan. This includes addressing the challenges of the digital economy and identification of applicable rules to enhance the existing international tax rules.

The impact will be that this will significantly widen the tax base. However, it remains to be seen the practicality of this given the grey area that is profit attribution attributable to suppliers within the digital space who have no taxable presence in Kenya.

Key questions will be how the taxable presence will be established in Kenya given that the major players in this industry have no permanent establishments (PE) in Kenya and how profit will be taxed under Kenyan jurisdiction. This creates uncertainty in terms of issues of double taxation and ways of seeking redress given that this conundrum that is the digital economy has not been fully developed in most jurisdictions. It remains to be seen how these pertinent questions will be addressed.