Kenya Projected $46 million through Crypto Exchanges Tax

The Kenya Revenue Authority (KRA) expects to earn up to 5 billion Kenyan shillings ($45.5 million) during the first half of 2021 from a new tax that targets cryptocurrency exchanges among the user and other online services, according to a top KRA official.

The crypto exchanges tax was first proposed in August 2020, the digital services tax (DST) came into force on Jan 2 amid concerns over implementation. The tax is charged at the rate of 1.5% on gross transaction value with every crypto sale; while it is for both local and foreign digital asset exchanges operating in the country, it will also pay the tax to the Kenya authorities. Peer-to-peer platforms like Binance and Paxful will be required to pay the tax each month. However, Kenyan crypto businesses can claim back their DST at the end of each year since they are already subject to paying other local taxes.

According to Rispah Simiyu, commissioner of the domestic taxes department at the Kenya Revenue Authority, the tax is an appropriate response to the exponential growth of digital activity in the East African country, the continent’s third-largest crypto economy; She projected that the DST would earn the Kenyan authorities $45.5 million in revenue for the first six months of this year. Simiyu noted that the new tax represents a “remarkable step in Kenya,” adding the increasingly digital marketplace is a promising platform for revenue generation, and realignment of tax collection mechanism is of urgent necessity it provides an avenue for multinational to contribute to the growth of the country where they derive their income.

This will strengthen the moral business case for international commerce as practiced in Kenya.”
In contrast, Kenya is ranked as the third biggest Bitcoin (BTC) market in Africa after Nigeria and South Africa. While one the Paxful P2P exchange alone, Kenyans have traded $55.3 million worth of Bitcoin or 5,894.8 BTC, over the past five years. The country is Paxful’s eighth largest market in the world, only exceeded by Nigeria in Africa. Moreover, the new tax measures have been received with mixed feelings from inside Kenya. Lawerence Mungai, a tax expert with PWC Kenya, said the country intends to bring “under the tax net enterprise operating within the digital economy that has little or no presence in the market jurisdiction.”

However, he’s unsure if this goal will be achieved “in light of the different models adopted globally by stakeholders in the digital economy.” A local TV station reported that players in the digital economy warned that the new tax might derail the growth” of the nascent sector. It said that traders had asked for more time to grow in the country. Although the Covid-19 pandemic has accelerated the paradigm shift digitalization in Kenya, the digital marketplace’s evolution has prompt the Kenya Revenue Authority last November to introduce a modern tax collection mechanism that aligns with online business models. The introduction of the digital service tax (DST) in January 2021 is a significant step for Kenya.

The tax, which was introduced through the Finance Act 2020, will charge a considerable low rate of 1.5 percent of the gross transaction value. It will be payable by a person, both resident, and non-resident, who derive or earn income in Kenya by providing service on the digital marketplace. As mentioned, the Kenya Revenue Authority’s move came when the government realized the upsurge of cryptocurrency ownership of the Kenyan people and investors to hedge against the weak currency and the dwindling economic situation been impacted by the coronavirus pandemic. In contrast, the government deems it fit to generate tax through platforms such as Binance and Paxful and to have full confidence in the country’s digital econo

Adeleye Awakan

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