The Kenya Revenue Authority will from September 1, 2023, impose a three per cent levy on the trade of digital assets as part of the new taxes imposed under the Finance Bill, 2023.
A digital asset is anything identifiable that is created and stored digitally and has or provides value.
The new levy means that every person dealing in assets such as cryptocurrencies and non-fungible tokens (NFTs), data, images, videos and written content will yield this chunk of their transaction to the taxman.
“A person who is required to deduct the digital asset tax shall, within twenty-four hours after making the deduction, remit the amount so deducted to the Commissioner together with a return of the amount of the payment, the amount of tax deducted, and such other information as the Commissioner may require,” reads the Act signed by President William Ruto on June 26.
The law defines a digital asset as “anything of value that is not tangible and cryptocurrencies, token code, number held in digital form and generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration that can be transferred, stored or exchanged electronically, and a non-fungible token or any other token of similar nature, by whatever name called.”
While cryptocurrencies have continued to gain popularity globally in recent years, the uptake has been low in Kenya.
As a result, the new DAT has raised concerns among experts who argue that because there is no regulation governing the digital assets industry in Kenya, the new tax will be of no significance or benefit to the government.
The government earlier this month suspended the operations of Worldcoin, the cryptocurrency project by the US generative Artificial Intelligence (AI) company OpenAI which saw an uptake frenzy in the country during the first two weeks of launch.
The Interior Ministry cited data privacy concerns with the crypto project because users had to have their eyeballs scanned to verify their online identity upon registration.
In June, the Central Bank of Kenya (CBK) said it does not consider the issuance of a digital currency a “compelling priority” but noted it will nonetheless continue monitoring developments in the field for future decisions.
This was after the lender invited views from the public on the potential introduction of a central bank digital currency (CBDC) in February last year.
“On the global stage, the allure of CBDCs is fading,” CBK said in a statement. “Implementation of a CBDC in Kenya may not be a compelling priority in the short to medium term.”
“Recent instability in the global crypto assets market has amplified concerns and the need for a careful review of the innovation and technology risks,” the bank said.
Kenya now follows Nigeria which in June introduced a 10 per cent digital assets tax barely two years after its central bank imposed a ban on cryptocurrency trading.