Why KRA is after Netflix, ChatGPT and Airbnbs

The taxman is poised for a sweeping crackdown on the fast growing digital economy under new regulations that establish a broad-based tax on non-resident companies, directly targeting the income of global giants like Netflix, Airbnb, and OpenAI like Google’s ChatGPT from Kenyan users.

The Income Tax (Significant Economic Presence Tax) Regulations, 2025, published by the taxman on Monday, formally replace the 2020 Digital Service Tax (DST) with the more comprehensive levy. 

The new rules hinge on a simple but powerful definition: A non-resident person is deemed to have a significant economic presence in Kenya simply if the user of its service is located within the country. 

This move significantly expands the Kenya Revenue Authority's (KRA) reach into the digital earnings of multinational firms.

"The significant economic presence tax shall apply to the income of a non-resident person derived or accrued in Kenya from the provision of services through a business carried out over the internet or an electronic network including through a digital marketplace," the regulations state, framing it as a final tax.

Analysts say the new tax could lead to higher prices for consumers, as the targeted firms may choose to pass the additional cost on to users.

The three per cent levy on revenue earned from Kenya adds a direct operational cost for companies like Netflix, Uber and Airbnb, which analysts say could be passed on through increased subscription fees, ride-hailing charges or higher commissions, ultimately impacting the cost of digital services for Kenyan consumers.

The scope of taxable services is vastly expanded beyond the previous DST. 

The new law casts a wide net over the modern digital ecosystem, aiming to capture revenue from downloadable content like mobile apps from the Google Play Store and e-books from Amazon Kindle, subscription-based media such as The Economist, and streaming platforms like Netflix, Spotify, and Disney+.

It also explicitly encompasses software and cloud services from providers like Microsoft and Amazon Web Services, along with digital marketplaces that facilitate services, placing companies like Airbnb, Booking.com, Uber, and Bolt squarely in focus. 

In a reflection of the latest technological trends, the regulations also name artificial intelligence services, such as OpenAI's ChatGPT and the transmission of monetised user data collected from digital activities.

The law leaves little room for ambiguity on determining a user's location. A user is considered to be in Kenya if they access the service from a device in the country, use a Kenyan payment method like a local credit card, or have a Kenyan IP address or mobile country code.

"Payment for the services is made using a credit or debit facility provided by any financial institution or company in Kenya," the regulations specify as one of the key parameters.

The tax computation method shifts from the previous 1.5 per cent on gross transactions to a corporate income tax-like structure. 

The taxable profit is deemed to be 10 per cent of the gross turnover derived from Kenya, with the tax rate set at 30 per cent of that profit—resulting in an effective tax rate of three per cent on revenue.

Compliance timelines are strict under the new rules. 

Non-resident companies or their appointed local tax representatives are required to "submit a return in the prescribed form and remit the tax due on or before the 20th day of the month in which the service was offered."

The KRA is armed with significant enforcement powers. 

The Commissioner can issue a written notice to any person, including financial institutions, customers, or agents, requiring them to deduct taxes owed directly from payments to the non-resident taxpayer. 

Furthermore, "a person who fails to comply with the provisions of these Regulations will be liable to the penalties and interest prescribed under the Tax Procedures Act," which can include substantial fines and accruing interest on unpaid amounts.

The regulations include key exemptions, notably for non-resident companies that operate through a permanent establishment in Kenya—which are subject to standard corporate tax—and for digital services sold to airlines where the Kenyan government holds at least a 45 per cent stake.

The new rules take effect upon official publication, with a transitional provision automatically migrating companies already registered under the old DST regime. 

KRA Commissioner General Humphrey Wattanga has invited public comments on the draft Income Tax (Significant Economic Presence Tax) Regulations, 2025, according to a public notice issued on behalf of the Cabinet Secretary for the National Treasury published on Monday. 

The move seeks input from stakeholders and members of the public before the regulations are finalised. 

The draft document has been posted on the KRA website, and written submissions should be directed to the Commissioner General via postal mail or email before October 7.

The tax reform places Kenya at the forefront of Africa's push to tax the digital economy, representing a significant escalation in the government's campaign to capture revenue from the rapidly expanding digital services market.