Virtual Asset Stakeholders Unite to Propose Comprehensive Tax Reforms for Kenya's Finance Bill 2025

In a groundbreaking move, a coalition of leading virtual asset stakeholders in Kenya has joined forces with PwC to propose comprehensive virtual asset tax reforms under the Finance Bill, 2025. This collaborative effort aims to modernize Kenya's approach to digital asset taxation, ensuring a robust regulatory environment that balances innovation with fiscal responsibility.

The stakeholders have outlined three critical proposals designed to modernize Kenya's approach to digital asset taxation:

1. Repeal of Specialised Digital Asset Tax Regime: The stakeholders proposed the complete deletion of Section 12F of the Income Tax Act (ITA), which currently establishes a specialised taxation regime for digital assets. This regime has been problematic due to its failure to recognize losses and volatility inherent in digital assets, its disproportionately harsh treatment compared to other property forms, and the high likelihood of double taxation in digital asset transactions.
2. Integration of Digital Assets into Standard Property Tax Framework: The proposal recommends amending the definition of 'property' under the Eighth Schedule of the ITA to include digital assets explicitly. This amendment would ensure that virtual assets are taxed under normal property disposal rules, including Capital Gains Tax and business income provisions, promoting equality and fairness across different asset classes.
3. Recognition of Virtual Asset Service Providers (VASPs) as Financial Institutions: The submission advocates for including VASPs under the definition of financial institutions for both VAT and Excise Duty purposes. This would provide tax exemptions similar to traditional financial institutions and prevent cascading VAT charges that could stifle innovation in the digital finance sector.

The stakeholder coalition represents a comprehensive cross-section of Kenya's virtual asset ecosystem, bringing together established platforms, innovative startups, and technology builders to advocate for regulatory clarity that supports innovation while ensuring compliance. "Technology dies or thrives on the altar of law and policy. Fundamentally, as an industry, we would prefer to be regulated in terms of the offered service and not the underlying technology," said Keega Gakuua, Managing Partner at Keega & Co Advocates & Head of Legal at Swypt. The international perspective was equally emphasized, with insights from operators who have navigated regulatory frameworks across Africa.

The proposed reforms aim to align Kenya's tax framework with international best practices while ensuring:

• Tax Neutrality: Equal treatment of digital and traditional assets
• Innovation Support: Removal of barriers that could hinder fintech development
• Consumer Protection: A clear regulatory framework that protects investors
• Revenue Optimisation: Efficient tax collection without stifling growth The reforms are expected to promote financial inclusion, attract international investment, support blockchain and cryptocurrency businesses, enhance transparency, and create a level playing field for all market participants.

The proposal for comprehensive virtual asset tax reforms under the Finance Bill, 2025, marks a significant step towards creating a favorable regulatory environment for Kenya's digital asset ecosystem. By repealing the specialized digital asset tax regime, integrating digital assets into the standard property tax framework, and recognizing VASPs as financial institutions, the stakeholders aim to promote innovation, protect consumers, and optimize revenue collection. As the National Assembly Committee on Finance and National Planning reviews these proposals, the future of Kenya's digital asset landscape hangs in the balance, with the potential to position the country as a leading destination for digital asset innovation in Africa.