A coalition of leading cryptocurrency firms in Kenya is advocating for significant reforms to the country’s taxation of digital assets. This call for change has emerged in response to the controversial Digital Asset Tax (DAT), a flat 3% tax on cryptocurrency transfers that has drawn criticism for being perceived as unfair, stifling innovation, and out of touch with global trends. Observers note the implications this could have not only for the industry in Kenya but also for the country’s broader economic landscape.
Recently, firms like Busha, Kotani Pay, Luno, Swypt, HoneyCoin, and DurraFx assembled to present their proposal to the National Assembly’s Finance Committee on May 29. With the backing of PwC Kenya, who served as advisors during this critical meeting, these firms aim to replace the current taxation framework with one that is more equitable and aligned with international standards.
The coalition has articulated three key proposals that form the backbone of their argument. First, they are seeking the repeal of Section 12F of the Income Tax Act, which mandates the 3% tax on digital asset transfers regardless of whether there has been any actual gain. This aspect of the current tax structure has been widely criticized for potentially discouraging trading activity and investment in cryptocurrency.
Second, the proposal advocates for the classification of digital assets as property, which would facilitate their taxation under standard capital gains rules. This would enable more appropriate taxation measures that reflect the nature of digital assets, reducing the burden on traders and investors who are currently penalized regardless of profit.
The third proposal urges the government to recognize Virtual Asset Service Providers (VASPs) as financial institutions for the purposes of value-added tax (VAT) and excise taxes. By doing so, the coalition aims to avoid double taxation and cascading fees, thus promoting a healthier environment for innovation and entrepreneurship in the cryptocurrency space.
The motivations behind these reform proposals are clear. The current law has been criticized for treating digital assets more harshly than traditional property types, an approach that industry stakeholders argue is detrimental to both innovation and investment in Kenya. Keega Gakuua, the head of legal at Swypt, emphasized that the future success of technology in any sector is largely determined by the legal framework underpinning it. “Technology dies or thrives on the altar of law and policy,” he stated, indicating a strong desire among industry players to be regulated based on the services they provide rather than the technology itself.
The crypto industry in Kenya has been proactive in its efforts to engage with lawmakers. Over the past few years, stakeholders have returned to Parliament time and again, presenting insights, proposals, and even drafting policy documents aimed at facilitating a more conducive regulatory environment. However, these efforts have not yet yielded substantial regulatory reforms or tax adjustments.
In an effort to further educate lawmakers, the Virtual Assets Chamber of Commerce (VACC), with support from Binance, recently organized a training session for members of the Finance Committee. Lawmakers participated in real-time cryptocurrency transactions and explored blockchain infrastructure, providing them with a deeper understanding of the ecosystem they are tasked with regulating.
As policymakers continue to deliberate on the Finance Bill 2025, which includes considerations on the taxation of digital assets, proponents of change in the crypto space believe that this is the crucial time for them to make their voices heard. Industry representatives are advocating for a framework that balances revenue generation with the need to foster innovation, arguing that a supportive environment could position Kenya as a leader in Africa’s blockchain landscape.
The introduction of the DAT was partly motivated by the need for increased tax revenue, a concern that was underscored by the International Monetary Fund (IMF) in previous loan agreements with Kenya. However, many stakeholders argue that this approach is short-sighted. Chebet Kipingor of Busha noted that, as Nigeria’s first licensed exchange, they have witnessed firsthand how sensible regulations can encourage crypto adoption. He believes that with the right tax framework, Kenya has the potential to lead Africa’s blockchain future.
Looking ahead, Parliament’s deliberations on the Finance Bill 2025 are expected to take place in the coming weeks. Industry players perceive this as the final opportunity to influence the legislative outcome regarding the taxation of digital assets. If the proposals put forth by the crypto coalition gain traction, it could be a transformative moment for the cryptocurrency market in Kenya and perhaps a model for other nations in the region.
In conclusion, as the crypto landscape continues to evolve, it’s essential for regulators to strike a balance between generating revenue and fostering an environment that encourages innovation and investment. The actions taken in Kenya may serve as a benchmark for how other countries will approach the regulation of digital assets moving forward. The conversation is only just beginning, and it will be pivotal to watch how the government responds to these recent requests from the industry.
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