Netflix prices to increase in Kenya over inclusion of VAT charge

by Sumaya Hussein


The Netflix interface on a flat screen – Photo/ Business Today

Netflix monthly charges have increased after the company included a value added tax (VAT) charge in its billing.

The subscription service has reviewed its rates to Ksh1,100 from Ksh950 for the standard package and Ksh1,450 from Ksh1,200 for the premium package. The new prices are set to take effect from end of May.

“Starting May 30, a value added tax (VAT) will be included in your Netflix price,” read the company’s message to subscribers.

Subscribers under the basic plan that goes for Ksh700 will however not be affected.

The increasing cost of the service has been slowly pushing people out of Netflix, which some now consider a luxury.

The Digital Service Tax (DST) came into force on January 1 and was introduced to both the Income Tax Act (ITA) and Value Added Tax Act (VAT). Both Acts prescribe that DST shall be payable by a person whose income is earned in Kenya from the provision of services through a digital market place.

The VAT applies to supplies undertaken in the digital marketplace at the standard rate when supplied in Kenya.

Under the ITA, businesses selling services online are expected to pay a flat tax of 1.5 per cent on the value of goods supplied and sold online, or services offered through digital platforms.

Services and goods that fall under the ITA bracket include e-books, movies, music, games, tickets for live events and theatres and subscription-based media including news, magazines and digital content.

Online businesses have become a target for government to widen its tax base, with the aim of lifting domestic tax revenues. The Kenya Revenue Authority (KRA) is targeting businesses and persons under the new digital taxes selling services and goods online.

The taxman is banking on the Covid-19 disruptions that accelerated the use of online platforms to sell goods and services, and raise Ksh5 billion from the sector in the six months to June.

The latest data from the Communications Authority (CA) shows that mobile data subscriptions in Kenya stood at 44.4 million in the second quarter of 2020.

Factors driving the growth include increased population coverage of 3G and 4G networks, availability of affordable smartphones and data plans. Moreover, the increased consumption of e-commerce, e-government, social media and other online content have also contributed to the growth.

Why digital taxes?

The KRA previously stated in Techpoint Africa’s previous report that digital companies like Google and Facebook generate a lot of revenue from Kenya but do not pay taxes. On top of that, several businesses in and out of Kenya, do not remit VAT for their transactions.

Online businesses usually have no physical structures or addresses from which they operate, making it easy to escape taxations.

The argument for taxing the digital economy is the same in most countries of the world – digital companies defy today’s tax laws and international trade agreements.

However, it is difficult to determine where value is being created for digital companies Netflix, for instance, has engineers in the US and partners with video production houses all over the world. Where then are Netflix’s services being produced?

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