Kenya’s Finance Bill 2023 is set to introduce a new income tax law for digital content creators and gamblers. The bill seeks to amend section 2 of the Income Tax Act, Cap. 470, by deleting the definition of “winnings” and substituting it with a new definition of “winnings”. The bill also introduces new definitions of “digital content monetization” which includes various forms of offering electronic content for payment.
Currently, income tax is only applicable to individuals and companies that earn income through employment or business activities. Digital content creators, who earn income through creating and monetizing content online, are not required to pay income tax in Kenya. This has resulted in the government losing potential tax revenue from this growing industry.
The Proposed Amendments to the Income Tax Act
The new definition of winnings will exclude the amount staked or wagered. This means that online gamblers who earn income through betting, gaming, lottery, prize competition, gambling, or similar transactions will be required to pay income tax on the payout they receive.
Additionally, the bill introduces a new definition of “digital content monetization”. This definition includes various forms of offering electronic content for payment. Some of the forms included in this definition are advertising on websites, social media platforms, or similar networks by partnering with brands, sponsorship where a brand owner pays a content creator for content creation and promotion, affiliate marketing where the content creator earns a commission whenever the audience of the content creator clicks on the product displayed, subscription services where the audience pays a periodic fee to access the content and support the content creator, merchandise sales where physical goods and services are sold featuring a logo, brand, or catchphrase to the audience of the content creator, eBooks, courses, or software, membership programs for exclusive content including early access, licensing the content including photographs, music, or other businesses or individuals for use in the user’s own projects, and crowdfunding for raising funds for specific goals for a content creator or another person.
Marketing services will now be subject to a 5% withholding tax while digital content monetization is subject to a 15% withholding tax.
in respect of payments for sales promotion, marketing, advertising services, the aggregate value of which is twenty-four thousand shillings in a month or more, five per cent of the gross amount;
Implications of the Proposed Amendments
The proposed amendments to the Income Tax Act will have significant implications for digital content creators in Kenya. For one, digital content creators will now be required to pay income tax on their earnings from various forms of digital content monetization. The bill’s introduction of income tax for digital content creators aims to bring them into the tax net and increase the government’s revenue from this growing industry.
However, if the Bill is passed by Parliament, it will lead to increased compliance costs for content creators. This could result in many small-scale content creators struggling to pay taxes, which may lead to them abandoning their content creation efforts. Additionally, the bill may lead to the reduction of investments in the industry, with investors choosing to invest in other countries with friendlier tax policies for digital content creators.