At the beginning of the year, the Digital Service Tax came into effect in Kenya, imposing a new tax regime for cryptocurrencies
The Digital Service Tax, or DST, went into effect in Kenya in early 2021. The DST is part of the revamped Finance Act of 2020 and is mostly focused on the digital services market.
Under the provisions of the new tax regime, e-market transactions (including cryptocurrency payments) now carry a 1.5% tax.
Reginald Alango, a Kenyan representative at peer-to-peer cryptocurrency exchange Bitzlato, explained to Cointelegraph that the new tax policy calls for a 1.5% tax on the gross transaction value of each crypto sale.
Commenting on the potential impact of the measure on crypto adoption in the country, Alango said:
„As for the negative impact on crypto adoption in Kenya, I don’t think it will be significant as there are many other factors that are driving the rapid growth of crypto in East Africa and young people are at the forefront. However, it’s still too early to make predictions – this is something that can be monitored after the first quarter of 2021.“
According to the Kenyan Revenue Authority, or KRA, DST will be the final tax payment for non-residents and companies not domiciled in the country. Residents and companies based in Kenya will see their DST payments offset against income taxes collected during the year.
Kenyan lawmakers say the new tax policy will not particularly affect startups in the digital services sector. In addition, the KRA indicated that the DST will ensure that foreign companies pay part of their profits in the country to the government.
The new legislation places Kenya among the nations that officially levy taxes on crypto legacy scam transactions. However, cryptocurrencies have not yet been granted any legal status in the country.
According to Alango, the new law does little to promote the official recognition of crypto in Kenya:
„Many things need to be considered for the legalization of cryptocurrencies in Kenya, and currently the central bank of Kenya does not recognize them even though the Kenyan Bitcoin market ranks third among African countries.“
The lack of a well-defined legal status for cryptocurrencies in Kenya is a symptom of the slow pace of crypto regulations on the continent. Aside from warnings issued in 2018 by various central banks as the sector began to attract worldwide attention, there has not been much progress toward legalizing virtual currencies in the region.
However, as crypto transactions become more popular, Kenya’s central bank is reportedly exploring the possibility of creating a sovereign digital currency.