Kenyan crypto firms on notice as digital tax law takes effect

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Kenya’s planned Digital Service Tax, or DST, came into effect at the start of 2021. The DST is part of the country’s 2020 revamped Finance Act that focused on the digital services market among other sectors.

Based on the provisions of the new tax regime, e-market transactions including cryptocurrency payments now attract a 1.5% levy.

Reginald Alango, a Kenya country representative at non-custodial peer-to-peer crypto exchange Bitzlato, told Cointelegraph that the new tax policy prescribes a 1.5% tax on the gross transaction value of every crypto sale.

Commenting on the potential impact of the policy on crypto adoption in the country, Alango stated:

“With regards to it having negative impact on crypto adoption in Kenya, I do not believe so as there are so many factors that are driving the rapid growth of crypto in East Africa and the youth are on the forefront pushing this. However, it’s still early to make a prediction but this is something that can monitored after the first quarter [of 2021].”

According to the Kenyan Revenue Authority, or KRA, the DST will serve as the final tax payment for non-residents and companies not domiciled in the country. Residents and companies with offices in the country will see their DST payments offset against any income taxes levied during the year.

Kenya’s policymakers say the new tax policy will do little to affect digital services startups in the country. The KRA also argued that the DST will ensure that foreign firms remit part of their earnings in the country to the government.

The new policy places Kenya among the group of countries officially levying taxes on crypto transactions. However, cryptocurrencies are yet to obtain any legal status in the country.

For Alango, the new law does little to advance the official recognition of cryptos in the country:

“A lot of things have to be considered if Kenya is to legalize cryptocurrency and as we currently speak the Central Bank of Kenya does not recognize it despite the fact that Kenya is ranked third in Africa in terms of Bitcoin market.”

Crypto’s lack of a clear-cut legal status in Kenya is symptomatic of the slow pace of cryptocurrency regulations on the continent. Beyond warnings by various central banks back in 2018 when the industry began gaining widespread attention across the globe, not much has happened by way of legalizing virtual currencies in the region.

However, with crypto transactions becoming more popular, Kenya’s central bank is reportedly exploring the possibility of creating a sovereign digital currency.