Kenya Scraps 3% Digital Asset Tax on Virtual Asset Transfers

The tax, which was introduced in the Finance Act 2023, had been widely criticized for its ambiguity and impracticality. The definitions of taxable assets, taxable events, and the taxpayer lacked clear distinctions, leaving exchanges with the burden of collecting and remitting 3% of the value of any asset transferred. According to the VAC, the previous 3% DAT posed significant challenges, including legal ambiguity, implementation impracticality, risk of double taxation, overburdening of platforms and users, and deterrence of innovation and compliance.

"The tax burden presented by the mechanics of this repealed tax was onerous," said Hon. CPA Kuria Kimani, CBS, Chair of the National Assembly Finance & Planning Committee. "We recognized the need for a more favourable tax regime that would support the growth of the digital asset industry in Kenya."

Through intense lobbying, which included educational sessions, regulatory correspondence, and public participation efforts, the VAC and its partners were able to convince the government to reconsider the tax. The joint advocacy was clear: scrap the unworkable tax and replace it with a clear, fair, and enforceable structure.

A New Tax Regime

The Finance Committee has now recommended a 10% tax on service fees/commissions charged by Virtual Asset Service Providers (VASPs), rather than taxing every digital asset transaction in its entirety. This move is seen as a significant improvement, as it aligns with international practice and real-world implementation.

The new tax regime is expected to have a positive impact on the digital asset industry in Kenya, which has been growing rapidly in recent years. According to a report by the VAC, the industry has seen significant growth, with many businesses setting up shop in the country. However, the previous tax regime had threatened to stifle this growth, with many businesses considering relocating to more favourable jurisdictions.

The scrapping of the 3% DAT has been welcomed by industry players, who see it as a major victory.

Future Outlook

The scrapping of the 3% DAT is seen as a major milestone for the digital asset industry in Kenya, and is expected to have a positive impact on the country's economy. As the industry continues to grow, it is likely that we will see more businesses setting up shop in Kenya, creating jobs and driving innovation. The VAC and its partners will continue to work with the government to ensure that the new tax regime is implemented effectively, and that the industry continues to thrive.

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