Zoom to Charge Kenyan Users 16% VAT from August, As the World Rallies for International Tax System

Besides the global push for digital taxation, which will force multinationals to pay 15% taxes wherever they are, African countries are beginning to create a new tax regime that will see consumers of digital services paying taxes.

Earlier in the week, Zoom, a popular teleconferencing app announced that it will from August 1, 2021 charge Kenyan users digital tax payable to the Kenya Revenue Authority (KRA).

Kenyans will now have to pay a 16% Value Added Tax (VAT) on digital services. The VAT tax on digital services was introduced by the Finance Act, 2019, but in 2020, the Treasury drafted the Digital Market Supply as an addition to the digital taxation framework.

“Taxable supplies made through a digital marketplace, digital scope of taxable supply through a marketplace, downloadable digital content including downloadable mobile applications, e-books and films … digital content for listening, viewing or playing on any audio, visual or digital media,” a statement from the new rules partly said.

The Digital Market Supply, which came into play last year, means that companies operating subscription-based digital services will have to charge consumers for VAT. The firms were given a six-month transitional clause to comply with the new rules.

Zoom is registered in Kenya as a non-resident supplier of electronic services. The communications platform falls under the category of firms meant to remit the 5 percent digital taxes which were made into law in January 2021. The electronic tax will however, be collected from non-VAT registered customers in Kenya.

“If you are registered for VAT in Kenya, you should provide Zoom with your Personal Identification Number (PIN) and a declaration that you are registered for VAT in Kenya. If you are registered for VAT, then no VAT will be charged on the supplies made to you by Zoom,” a statement by Zoom said.

Zoom’s annual subscription rate for premium videoconferencing services is about $250 (Ksh25,000) while the rate for its basic services goes for about $150 (Ksh15,000). This means that Kenyans, both individuals and firms, who consume these categories of services will have at least $25 more to pay for Zoom services.

However, corporations are more likely going to bear the brunt of the new VAT rules as they make more use of the app. Basic users are likely not going to pay for the services since they are limited to packages that can only host a maximum of 100 participants per meeting.

The move may likely kick off a new era of digital tax regime in Africa, as many countries including Nigeria have been mulling digital tax laws that will force online companies to register in the countries where they’re operative and pay taxes. The federal government of Nigeria said in June after it banned Twitter, that the microblogging app need to register and pay taxes among other things to be unbanned.

But like in Kenya, the Nigerian Finance Act, 2019, introduced a provision for non-resident digital businesses to apply 7.5% VAT on their B2C invoices to customers in Nigeria. Twitter does not fall in this category because it doesn’t offer subscription-based services.

To tax multinational digital companies, the world must reach a consensus on how much is to be taxed. Washington has been leading global negotiations that would force multinationals to pay tax wherever they are, and so far, the recommended minimum rate of 15% has got the backing of 130 countries.

The outbreak of covid-19, which shifted a lot of professional activities online, has seen tech firms rake in more revenues. The economic growth, which was powered by multinational services, instigated global calls for a fair international tax system.

“We need to put an end to corporations shifting capital income to low tax jurisdictions, and to accounting gimmicks that allow them to avoid paying their fair share,” US Treasury Secretary Janet Yellen told European finance ministers.