Challenges of Value Added Tax on International E-Commerce in Electronic Goods and Services in Kenya

Abstract

The current study was on the effectiveness challenges of value added tax on international e-commerce in electronic goods and services in Kenya. The study adopted a descriptive research design. The target population was 199 KRA VAT officers. The sample size was 50 officers. Primary data were used in this study. For primary data, the data collection instrument used in this study was questionnaires. These questionnaires were used to collect data from the taxation authority officials dealing with VAT. The questionnaires were administered via e-mail surveys and personal visits to respondents, that is the KRA VAT officers. The research findings revealed that the major challenges against an effective VAT system for international e-commerce in electronic goods and services in Kenya included the lack of attention to e-commerce as a unique industry in the VAT Act and the lack of unique policies to regulate the sector. From questions posed to the KRA VAT officers, it emerged that there was a lack of proper and adequate resources, and their usage, within the taxation authority to monitor the industry. The website owners commonly complained of the lack of proper infrastructure that hindered the growth of the industry, for example, the lack of a proper banking and financial infrastructure. it is recommended that the taxation authority (KRA) should make its internal administration processes and policies more efficient and grow with the technology as it grows, for example, through providing e-services to taxpayers to start with. The industry must be regulated through proper policies and legislation before KRA can contemplate properly obtaining the rightful tax from it. There is need to address e-commerce as a unique medium of transactions, demanding its own tax legislation. KRA should solicit the cooperation of stakeholders to regulate the industry, for example, Internet Service Providers could bill their clients on behalf of KRA through a withholding tax. Similarly, banking institutions could withhold value added tax, if need be, on financial transfers for electronic transactions carried out online. There is scarcity of information about the effectiveness challenges of Value Added Tax on International E-Commerce in Electronic Goods and Services in Kenya and in developing economies in general and this paper expands the existing knowledge base. Therefore, the unique contribution of the study has been to bring to light what is unknown about the effectiveness challenges of Value Added Tax on International E-Commerce in Electronic Goods and Services in Kenya.

Keywords: Effectiveness Value Added Tax, International Ecommerce, Electronic Goods and Services