VAT aspects of cross border E-Commerce in Kenya
Mwangi, Bilha Wanjiru
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Digital commerce has become part and parcel of the economy and businesses are able to transact in various jurisdictions without establishing a physical presence in the market jurisdiction. Countries have for a long time relied on maxims of territory and jurisdiction to levy taxes which have been hinged on physical presence. The shift of commerce from brick and mortar has therefore presented challenges to jurisdictions on how to deal with the VAT aspects of cross-border digital transactions. This study observed that the OECD has taken measures towards building global consensus on the tax treatment of cross-border electronic commerce. As a result, the OECD issued the International VAT/GST Guidelines which were closely followed by the Mechanisms for the Effective Collection of VAT/GST to guide countries in the levying and collection of VAT/GST in cross-border transactions in services and intangibles. This study has demonstrated that Kenya has adopted some of the measures recommended in the Guidelines but it has also noted that some gaps exist in its legislation. The Kenyan legal framework has been found deficient with regard to the definition of electronic services, adoption of a simplified registration and compliance regime for foreign suppliers of services and intangibles and the failure to include intermediaries in the scope of the VAT law. This study undertook two comparative case studies and analysed the legal frameworks of South Africa and Australia relating to the levying of VAT/GST on cross-border digital transactions. It established that South Africa has successfully adopted the simplified registration and compliance regime and also broadened the definition of electronic services in its VAT law. It noted that, Australia had also broadened its definition of electronic services and included the activities of intermediaries in the scope of its VAT laws. The study has identified these legislative actions as constituting key lessons that Kenya that can draw from these two case studies. This study concluded that Kenya is currently not adequately collecting VAT on cross border digital supplies of services and intangibles. The country needs to borrow from South Africa and Australia and reform its VAT laws.