Finance Bill 2021 proposes DST should apply to non-residents only

The Finance Bill, 2021 (the Bill) published on 30 April 2021 proposes to amend several tax laws and other non-tax laws including the newly introduced Digital Service Tax (DST).

No new taxes:

In this year’s Bill, no new taxes have been introduced in contrast to the previous year’s Bill, where a raft of new taxes including turnover taxes, minimum tax and the digital services tax were legislated into existence. 

While no new income taxes have been introduced, the Bill has proposed to amend the definition of the term “control” and permanent establishment. The new definitions of both terms are quite broad and would have significant implications from an international tax and transfer pricing perspective.

Digital Service Tax:

There is a proposal to amend the applicability of the digital service tax (“DST”) to non-residents only. This is a commendable move by the Government as it reduces the additional burden of DST compliance by resident persons who are already subject to corporate income tax. While the Government has removed DST obligation from resident persons, they have amended the scope of DST to include income accruing from an ‘online business’ or an electronic network in addition to income accruing through a digital marketplace.

This amendment appears to seek to widen the tax base to include other online businesses that would not constitute a digital marketplace. However, it is unclear whether this objective has been achieved as other critical sections of the Income Tax Act have not been amended to allow for the expansion of DST.


From an indirect tax perspective, a new excise tax has been proposed in respect of the Betting industry. This continues the trend of levying taxes on the Betting industry which is now one of the most highly taxed sectors. Similar to previous years, the trend of reducing the scope of goods and services that are zero rated and VAT exempt continues in this Bill.

Further, this year has also seen some focus around tax procedures which are primarily geared towards increasing the scope of authority of the KRA and providing more powers to the Commissioner. These amendments under the Tax Procedures Act appear to be overly biased towards the KRA without taking into account the taxpayer’s perspective and in some instances these provisions may be in conflict with other sections of the Tax Procedures Act and procedural rules contained in other statutes.

Finally, one of the glaring oversights noted in most of the proposed amendments in the Bill is the failure to carry through the amendments to other sections of the respective tax laws which may result in gaps and lack of clarity in law.  These gaps lead to confusion and misinterpretation of the tax laws by taxpayers. 

PwC take:

“The Finance Bill is expected to be debated in Parliament and enacted into law in the month of June,” commented Titus Mukora, Africa Transfer Pricing Leader at PwC Africa. “We hope the Parliament in conjunction with the Government will ensure the amendments proposed in the Bill carry through other sections of the respective tax laws to avoid ambiguity in law which normally result in tax disputes,” concluded Mukora.

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