Crypto exchanges operating in Kenya will no longer pay Digital Asset Tax (DAT) introduced in the Finance Act 2023. The 3% tax on revenue from trading cryptocurrency and other digital assets was implemented in September 2023. But the Kenyan court of appeal declared the tax unconstitutional on Wednesday.
DAT was imposed on crypto exchanges such as Kotani Pay and AZA Finance (formerly BitPesa). The law also directed that crypto taxes be remitted within five working days, along with a tax return detailing deductions and other required information.
None of the local cryptocurrency exchange platforms had remitted the taxes to the Kenya Revenue Authority (KRA) before Wednesday’s ruling that declared the bill illegal, a crypto executive told TechCabal on condition of anonymity. However, the companies had received notices to pay the tax weeks before the ruling.
DAT aimed to tax Kenya’s digital asset market, which ranks second behind Nigeria in crypto-related activities. Over 350,000 Kenyans also registered for the cryptocurrency project Worldcoin before the company’s operations were suspended in August 2023.
Given crypto’s volatile nature, a tax based on transaction gains or income, accounting for potential costs and losses, could have been more suitable, said an executive at the Blockchain Association of Kenya (BAK). In September 2023, BAK went to court to block the new crypto taxes. However, the case is now invalid, according to Kakai.
Other crypto experts argued that the Kenyan government could have aligned the DAT rate with the existing 1.5% Digital Service Tax (DST), which was introduced in the 2020 Finance Act. DST is a 1.5% tax on income from online marketplace services in Kenya.
The short tax remittance deadline was also seen as a burden to taxpayers with increased compliance costs.
Three court of appeal judges ruled that sections introduced to amend the Income Tax Act, Value Added Tax Act, Excise Duty Act, Retirement Benefits Act, and Export Processing Zones Act in the 2023 Finance Bill were unconstitutional because they lacked fresh public participation.
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