Kenya is set to tax cryptocurrency exchanges for the commissions they receive from over four million people dealing in digital currencies in the country, if newly proposed regulations are adopted.
The new regulations require platforms that facilitate the buying and selling of cryptocurrencies and other digital assets to pay a 1.5 percent duty, as stated in the recently published Value Added Tax (Electronic, Internet, and Digital Marketplace Supply) Regulations of 2023 by Treasury Cabinet Secretary Njuguna Ndung’u.
The regulations define taxable electronic, internet, or digital marketplace supplies to include the facilitation of online payment for the exchange or transfer of digital assets, excluding exempted services under the Act. Digital assets are broadly defined as anything that is created and stored digitally and has or provides value, including cryptocurrencies such as Bitcoin, data, images, video, and written content.
Kenya implemented a 1.5 percent digital service tax in January 2021, aimed at curbing tax avoidance by multinational companies offering services to Kenyans through a digital marketplace but not registered in Kenya. Popular online exchanges currently charge fees ranging from 0.9 percent to 4.9 percent for buying and selling cryptocurrencies. Some of the well-known exchanges operating in Kenya include Binance, Coinbase, Bitstamp, Bitpanda, Kraken, Coinmama, UpBit, and eToro.
The move to tax cryptocurrency exchanges in Kenya comes as global regulators increasingly seek to regulate and tax the cryptocurrency industry to mitigate risks of financial instability and exposure to the volatile cryptocurrency market. The United Nations Conference on Trade and Development (UNCTAD) has recommended mandatory registration for crypto exchanges and digital wallets, as well as the taxation of cryptocurrency transactions in developing countries like Kenya to make the sector less attractive and reduce the potential for tax evasion.
In Kenya, cryptocurrency is popular among investors as a means to preserve savings and facilitate international transactions, including individual remittances for those working abroad or commercial use such as purchasing goods for import and sale. Payment for imports through cryptocurrency is seen as convenient and cost-effective compared to traditional methods such as buying dollars with the Kenyan shilling or using money transfer firms like Western Union.
The implementation of taxes on cryptocurrency exchanges in Kenya marks a significant step towards regulating the cryptocurrency industry in the country and aligning with global efforts to address the regulatory challenges posed by digital assets. It is expected to generate revenue for the government while ensuring that the cryptocurrency industry operates within the legal framework and contributes to the country’s economic growth.
