As of August 2025, the Kenya Revenue Authority (KRA) has collected Sh2.3 billion from 454 foreign digital service providers operating in the country. This is a major step towards maximizing tax revenue from multinational companies that operate in the digital space without physical presence in the country.
From DST to SEP Tax
A big chunk of the Sh2.3 billion came from the Digital Service Tax (DST) which was introduced at 1.5% of gross turnover in June 2020. However, this tax was replaced in December 2024 by the Significant Economic Presence (SEP) Tax which has continued to increase tax revenues.
According to Nickson Omondi, manager in charge of KRA’s Digital Economy-Tax office, Sh300 million came from the newly introduced SEP Tax. Omondi said businesses that were paying DST transitioned to SEP tax automatically.
What is SEP Tax?
The SEP Tax is designed to target foreign companies that earn revenue from digital services in Kenya but have no physical presence in the country. This tax is charged at 30% of deemed profit which is calculated as 10% of gross turnover. This means these companies will pay 3% of gross turnover earned from digital services in Kenya.
Key Players affected by SEP Tax
Several global tech giants are already affected by the SEP Tax including well-known companies like Amazon, Microsoft, Netflix, Facebook and Alibaba. These companies were not paying local income tax under traditional permanent establishment rules as they had no physical presence in Kenya.
The tax also applies to international service providers like Uber and Bolt which operate in Kenya’s ride-hailing sector. They are now paying SEP under the new tax regime further strengthening Kenya’s efforts to ensure all businesses benefiting from its digital economy contribute fairly to the tax base.
The government has recently simplified tax administration for foreign companies. Under the draft regulations, companies paying SEP Tax will be required to open an account with a local bank to qualify for refunds in case of overpaid taxes. This addresses the issue where companies had no mechanism to recover surplus payments. These refunds will only be processed through Kenyan banks, including accounts tied to a Kenyan company, once KRA is notified and indemnified by the company.
The Growing Digital Market in Kenya
Kenya is one of the largest digital economies in Africa. According to UNCTAD data, Kenya is the third largest e-commerce market in the continent after South Africa and Nigeria.
With more and more Kenyan consumers accessing digital services, it’s imperative for the country to introduce taxes like the SEP Tax. Companies like Netflix which relies heavily on local subscriptions for its movie streaming service are now contributing big time to the tax revenue.