How will the Finance Bill 2024 affect the IT Business in Kenya

Income Tax Act –Withholding Tax
WHT on payment on digital marketplace
Proposed provisions: The Bill proposes to redefine a digital marketplace to mean an online or electronic platform which enables a person to sell or
provide goods, property or services and includes services such as ride-hailing, food delivery, freelance, professional, rental, task-based and any other
service that is not exempt from tax under the Income Tax Act.
Additionally, the Bill proposes to include the definition of “platform” to mean a digital platform or website that facilitates the exchange of a short-term
engagement, freelance or provision of a service, between a service provider, who is an independent contractor or freelancer, and a client or customer.
Further, the Bill proposes the introduction of withholding tax on income deemed to have accrued in or derived from a digital marketplace from the making
or facilitation of payments by the digital marketplace or platform. The proposed withholding tax rates are 20% and 5%, for resident and non-resident
persons, respectively

Implication: Within a digital marketplace or platform, the key players involved are the buyer, seller and the provider of a digital marketplace.
Currently, the income earned by an owner of a digital marketplace is subject to DST at 1.5%.
However, the income earned by a seller selling goods or services through this digital marketplace or platform is not subject to tax, despite the income
being earned or accrued from Kenya.
With this proposal, the sellers or persons offering goods or services through a digital marketplace or platform will now be brought within the tax
ambit. This proposal will be effected by the owners of the digital marketplace or platform being required to withhold tax at the rate of 20% or 5% for
non-residents and residents, respectively.
This proposal will result in increased tax revenue while at the same time placing an additional compliance burden on operators of digital
marketplaces or platforms.
Proposed effective date: 1 July 2024

Content Courtesy of KPMG Kenya Finance Bill 2024 Analysis