Kenyan ChatGPT users will soon see a new charge on their subscriptions—Value-Added Tax (VAT). OpenAI, the company behind the popular AI tool, has announced that it will start charging 16% VAT on services to Kenyan users from May 1, 2025. The move is due to compliance with Kenya’s VAT (Electronic, Internet and Digital Marketplace Supply) Regulations and the country’s growing efforts to tax the digital economy.

“We want to inform you about the introduction of a value-added tax (VAT) on your invoice which will be implemented starting May 1, 2025… If you have a valid Kenya Personal Identification Number (PIN), please update the Tax Status and ID section in your OpenAI account to ensure proper documentation,” OpenAI said in an email to users.

The Cost of Innovation: A New Tax on AI Tools

The VAT implementation adds ChatGPT to the growing list of digital services taxed in Kenya. Over the past decade, the tax base has expanded—from basic commodities like bread to mobile transactions, streaming platforms and now, AI tools. What’s interesting about this is the apparent contradiction between tax policy and Kenya’s ambitions for digital innovation.

In 2024, the government launched the National Artificial Intelligence Strategy 2025–2030 which aims to make Kenya a leader in AI adoption. The strategy promises to foster innovation, inclusivity and make AI accessible to all. But taxing AI tools like ChatGPT will limit access to the very people this strategy is meant to empower—students, startups, developers and researchers.

A Shift in Digital Taxation: From DST to SEP

The current VAT requirement is part of a broader shift in Kenya’s digital tax policy. Initially in 2021, the country introduced the Digital Services Tax (DST), a 1.5% levy on non-resident digital service providers. This was replaced by the Significant Economic Presence (SEP) tax under the Tax Laws (Amendment) Act, 2024—a framework meant to capture economic value created by foreign tech firms operating in Kenya.Alongside SEP, the VAT (Electronic, Internet and Digital Marketplace Supply) Regulations, 2023 require all foreign digital providers, regardless of size or revenue, to register for VAT in Kenya and charge it on locally consumed services. The Electronic Invoice Management System (EIDMS) which will come into effect in May 2025 will further tighten compliance by requiring real-time invoice submissions to the Kenya Revenue Authority (KRA).

Impact: Who will bear the cost?

While OpenAI will be responsible for collecting and remitting the VAT, the cost will ultimately be borne by Kenyan users. Subscriptions to tools like ChatGPT will become more expensive and will affect:

  • Startups using AI for automation, content creation and customer service

  • Students and educators using the platform for learning, research and productivity

  • Developers and freelancers experimenting with AI powered applications

  • Small businesses using AI to streamline operations and communication

With no exemptions or subsidy programs in place the higher cost could undermine digital inclusion and innovation—two areas the government claims to prioritize. This tax could widen the digital divide especially for individuals and businesses in low income or rural areas where access to advanced tools is already limited.

Policy vs Progress

The contradiction is hard to ignore on one hand Kenya is promoting AI and digital literacy as national priorities; on the other hand, it’s taxing access to these very tools. If the country is serious about a knowledge economy policymakers need to consider how financial barriers will inhibit the adoption and use of transformative technologies.

Taxing ChatGPT and similar platforms might be justified from a revenue perspective. But without targeted relief, tax credits or digital infrastructure investments to cushion the impact such policies will end up discouraging the same innovation they are meant to encourage.