Personal Finance: How the digital service tax will affect you

If 2020 taught us anything it’s that we must adapt as the times dictate. We must adjust our sails to the direction the winds of evolution are blowing. Either you adapt and evolve, or stay rooted in your outdated mantras and wait for the waves of change to pull you under. It was inevitable that we would all end up running our businesses online – someday, sometime – but 2020 hastened that inevitability. Click and mortar is the new brick and mortar.

So here we are, trading on these streets. No matter if you’re trading in touch-and-feel items of whatever kinds: from tomatoes to bedsheets, toys to cell phones…. And items you can’t touch or feel, i.e. the services. I’m talking concert tickets and eBooks and online courses (these were particularly a hit. Most folk felt that the downtime at home was excellent for personal development. So we showed up in a stampede, like wildebeest crossing the Sand River in the Mara. I’m taking some classes on SkillsShare, what are you subscribed to?).

There was also buzz around creating content on WordPress blogs, Instagram reels or on YouTube channels, quoting that all so famous line we love to hate: “Hey, guys, welcome back to my channel! If you’re new here, please remember to subscribe and hit the bell button… Subscription is free, guys! Free. Also remember to like and share, leave me a comment down below telling me what content you’d love to see me share. Today I will be….” Then you sit there for 45 minutes watching them execute the banalities of life with such flair, that you wonder what has become of you.

Anyway, while all this activity was being registered online the taxman was lurking in the shadows. Cold. Calculating. Biding his time, like Joe Biden. And when the iron was at its hottest and we had embraced online transactions as the new way of life, the taxman leapt in from the shadows and said, “I want a piece of that pie.”

Enter stage left, digital service tax: KRA says that all this online activity has to be taxed – that some money has to go back into their pockets. The regulations of this tax were drafted in August 2020 and put into effect on January 1, 2021. This digital service tax (DST) is at a rate of 1.5 per cent of the transaction value.

There is a list of services – operative word, services – that fall under this tax umbrella. You who is running their business online need to know what’s in there.

How DST affects you as an online content creator

First things first, DST taxes online services. Which means that if your business sells touch-and-feel items, then you won’t be subject to DST. However, if your website or any other online platform is used to sell these touch-and-feel items, then the platform is considered a marketplace and is subject to DST.

An easy example is YouTube; the videos we watch of our favourite YouTube-rs doing those things they do. A majority of them have opted to monetize their videos, which means that they make money from their viewership. More views, means more money. This money will be taxed.

YouTube will be charged DST for being the platform that hosts these videos, and the YouTube-r in question will also be taxed for streaming video content on YouTube. Makes sense?

Another example. Our very own Nation Media Group has a paid-subscription service for its ePaper. Monthly subscription for Daily Nation ePaper is Sh980. NMG will be required to remit 1.5 per cent of this subscription fee (Sh14.70) to KRA.

How DST affects you as an online content consumer

You will likely feel the effect of DST in the pricing of services. Suppliers may hike them up by 1.5 per cent to cover this tax. Say, the cost of the Daily Nation ePaper may be upped by 1.5 per cent to Sh994.70. Or they may choose to absorb this cost, such that the cost is inclusive of DST.

Industry authorities who offer online courses and masterclasses in Kenya will also be taxed. Find out whether their class rates are inclusive of DST.

In cases where subscription to the digital content is free – say on YouTube – then you will not feel the effect of DST. But then, ‘if you are not paying for it, you become the product.’

Bett Florence-Kinyatti is a certified accountant with ACCA and a former financial auditor.