Kenya has it planned Digital Service Tax, or DST, went into effect in early 2021. The DST is part of the country’s 2020 revised Finance Act, which focused on, among other things, the digital services market.
Based on the provisions of the new tax regime, e-market transactions, including cryptocurrency payments, are now subject to a 1.5% tax.
Reginald Alango, a Kenyan country representative at the non-custodial peer-to-peer crypto exchange Bitzlato, told Cointelegraph that the new tax policy mandates a 1.5% tax on the gross transaction value of any crypto sale.
Commenting on the policy’s potential impact on cryptocurrency acceptance in the country, Alango stated:
“As for the fact that it negatively impacts cryptocurrency acceptance in Kenya, I don’t believe so, as there are so many factors driving the rapid growth of crypto in East Africa and the youth is at the forefront of this. However, it is still early to make a prediction, but this is something that can be tracked after the first quarter [of 2021]. “
According to the Kenyan Revenue Authority, or KRA, the DST will serve final tax payment for non-residents and non-resident companies. Residents and businesses with offices in the country will see their DST payments offset against any income taxes charged during the year.
Kenya policymakers say the new tax policy will have little impact on digital services startups in the country. The KRA too argued that the DST ensures that foreign companies transfer part of their income in the country to the government.
The new policy places Kenya in the group of countries that officially tax crypto transactions. However, cryptocurrencies do not yet have legal status in the country.
For Alango, the new law does little to promote the official recognition of cryptos in the country:
“There are many things to consider as Kenya legalizes cryptocurrency and at the moment the Central Bank of Kenya does not recognize it, despite the fact that Kenya ranks third in Africa in terms of Bitcoin market.”
Crypto’s lack of clear legal status in Kenya is symptomatic of the slow pace of cryptocurrency regulation in the continent. More than warnings from various central banks in 2018 when the industry started to receive widespread attention around the world, not much has happened yet legalizing virtual currencies in the region.
However, with crypto transactions gaining in popularity, The central bank of Kenya is reportedly investigating the possibility of creating a sovereign digital currency.