According to WTO, e-commerce involves the production, distribution, marketing, and sale of goods and services by electronic mode. . The goods and services in e-commerce usually involve physical and digitally downloadable products and tangible and intangible services. E-commerce has grown tremendously over the past decade and it is expected to grow further. This growth is attributed to many household and businesses connected over the internet hence making connectivity to the online platform more accessible.Globalization has caused massive changes on how businesses operate in the 21st century, thus they don’t need to have fixed place of doing business as most of them do exist online which makes it impossible for the tax authority to notice them. Consumers also have the privilege of shopping at their homes or offices while accessing goods from all over the globe. The use of social media such as Facebook and Instagram, has also significantly accelerated the marketing of the online products as most of them are posted, making them easily noticeable by potential customers. According to WTO, e-commerce sales were $2290 and they are expected to rise to $2774 by 2018.
Studies show that Kenya is the top internet users in Africa only behind South Africa and Nigeria at 53% and of those, 17% of them shop online in 2016 a move up from 3% in 2014. This can be attributed to availability of cheap smart phones, and strong network providers such as Safaricom and Telkom Kenya. Social network is the top accessed sites by Kenyans which has now been targeted by online vendors to market their products online. Kenya accounts for 6% of total purchases through the e-commerce platform with the leading players being Jumia, Safaricom Masoko, Kilimall and OLX. The major challenges of online businesses in Kenya is lack of proper addresses making physical delivery of goods difficult, lack of trust from consumers on the online products due to many fraudsters purporting to be selling goods and services and disappear after being paid.
The KRA is mandated with the task of collecting taxes in Kenya which is for use by the government in her development agendas. The major revenue collected by KRA is the income tax, VAT and excise duty which are all administered by the Domestic Tax Department. The challenges facing the revenue authority is the problem of tax evasion which is now a global issue facing many tax jurisdictions in around the globe which has negatively impacted the authority in its major goals of meeting its set tax targets. In the year 2016/2017 the KRA missed its target by 50 billion shillings which could have significantly reduced or bypassed had adequate taxes been collected from the e-commerce sector and other sectors which are not caught up by the revenue authority.
The emergence of digital firms has brought about many negative concerns pertaining revenue collection which includes tax avoidance and transfer pricing by many multinationals operating in the Kenyan tax jurisdictions. Firms such as Amazon, Facebook and search engines Google makes millions of shillings online in Kenya daily but declare them in lower tax jurisdictions. Kenya is pushing through OECD forum on Transparency and Exchange of Information for Tax Purposes to access revenue data of the said firms in various jurisdictions, but this won’t be achieved unless there is a global response.
The major drawback to revenue collection on the e-commerce platform has been attributed to the tax laws which have not kept pace with the advancement of technology. The VAT Act, (2013) specifies for a correct tax invoice to be issued when making a supply of taxable good and service, but when the purchase, delivery and payment is made online it becomes difficult for the revenue officials to detect the transaction. Also there is lack of record trail hence making it difficult for the tax auditors to get any information so as to compel the taxpayer to pay his due share of taxes. Thus introduction of electronic invoicing will be very beneficial to KRA for tax purposes and also other government agencies such CAK should share information so that the e-commerce vendors can be caught for tax purposes. Currently there are no requirements for an individual to conduct business online all he has to do is acquire an internet access and he is up and running. The CAK should then make it mandatory for those interested in online businesses to register with their KRA PIN and a notification should be sent to the tax authorities for them to be aware that the business is taking place. The CAK also has large magnitude of information about the online businesses and hence it should avail them whenever they are required particularly for audit purposes.
The Kenya Revenue Authority was established by an Act of parliament, Chapter 469 of the laws of Kenya in the year 1995. Its main mandate is the revenue collection on behalf of the government of Kenya and its purpose includes assessment, collection, administration and enforcement of laws related to revenue. Its core values include trustworthy, ethical, competent and helpful. The Domestic Taxes Department has the responsibility of collecting and accounting for VAT. For easy tax administration, DTD has the Medium Taxpayers Office formed in line with the Revenue Administration Reforms and Modernization Program (RARMP). The main objectives of MTO are to enhance voluntary tax compliance and better service delivery through taxpayer segmentation based on the taxpayers industry.
The Kenya Revenue Authority also has an investigation & enforcement department whose mandate is promotion of tax compliance through investigation, penalizing, and prosecution of tax offenders which has promoted tax confidence in the tax administration system. Enforcement a times were uneconomical hence lead to social loss, they should not be abolished. Frequent tax profiling and tax audits should be the main tools used as they increase chances of a tax evader being detected. Also the government should reduce the loopholes in the legislation so that tax planning can be minimized as taxpayers have grown the attitude of being aggressive tax learner in an effort to reduce their tax liabilities. The government should also seek to change the behavior of its citizens through proper utilization of tax revenue so as to enhance morality and ethics among them. Taxpayers are influenced by ethical and moral issues hence a taxpayer who has good moral and ethical will be tax compliant even though chances of being detected are low.