The assimilation of state economies and markets into the digital world has increased in recent years. This has put a discernible strain on the applicable national and international tax rules, which relied on the physical presence test to determine tax liability.[i] Today’s virtual, anonymous and borderless nature of the digital world has made it difficult for tax authorities to identify the residency or location of a buyer or a seller for tax purposes in a commercial transaction.[ii] The result of this is that many governments, including the Kenyan government, are exposed to the risk of base erosion and profit shifting (BEPS) arising from internet-based transactions.[iii]Due to the foregoing, Kenya opted to come up with workable tax law through which the country’s tax base can be protected from the threats posed by digitalisation.
[ii] Peter M. M. “Taxation of Electronic Commerce- A Commentary” 2019 Journal for Financing for Development Vol. 1 Issue 1.
[iii]Basu S “International Taxation of e-commerce: Persistent Problems and Possible Development” 2008 Journal of Information Law and Technology Vol. 1.