Compliance Nexus and Conflict between e-Commerce and Value Added Tax in Kenya

Abstract

The current study was to establish the level of e-commerce and level of vat compliance with respect to international e-commerce in electronic goods and services. The study adopted a descriptive research design. The population of this study was 199 VAT officials of the Kenya Revenue Authority (KRA) that deal in VAT audit and a total of twenty e-businesses found to be operating in Kenya through a preliminary survey. Ten more e-businesses were identified through the snow-balling method. The sample size in this study was 30 e-businesses and 50 VAT officers. Both secondary data and primary data were used in this study. For primary data, the data collection instrument used in this study was questionnaires.  As seen from the results, the average number of business processes supported online for the 24 e-businesses was 4.83 out of 12. Apart from this there was a significant level of online activity carried out by the businesses, for example, online payment mechanisms and electronic methods of keeping records were used by many e-businesses. Most e-businesses carried out a minimal level of international trade. From these results, it can be concluded that the existing e-businesses in Kenya do carry out a significant level of electronic activity locally, and a minimal level of international trade. However, VAT compliance may be poor, as both the tax authority and website owners did not understand well the value added tax implications of electronic trade.There was a significant level of e-commerce in Kenya carried out locally, and a minimal level of international e-commerce. This sheds doubt on the level of tax compliance in the industry. It is therefore recommended that KRA carry out appropriate research on the level of e-trade in Kenya and tax implications of the same. Relevant stakeholders should be involved in such consultation and research, for example, it is recommended that banks and financial institutions dealing with money transfers for e-transactions should provide statistics on the level of international e-commerce in Kenya to determine the seriousness of the trade. This information would enable KRA to determine the tax implications of such transactions and accord appropriate resources to monitor the industry. The unique contribution of this study is the closure of a previously identified research gap and the discovery that poor VAT compliance for Ecommerce businesses, is caused by both tax man and Ecommerce business owners, as both the tax authority and website owners did not understand well the value added tax implications of electronic trade.

Keywords:E commerce, Vat Compliance, Electronic Goods and Services