It is estimated that the proposed tax on cryptocurrency exchanges and other internet services would bring in up to $55.5 million in the first half of 2021.
Proposed in August 2020, the digital services tax (DST) took effect on January 2 despite implementation issues. The tax is applied at a rate of 1.5 percent on gross transaction value for every crypto sale, and it is paid to the Kenyan government by both local and international digital asset exchanges. Platforms like Binance and Paxful will have to pay the tax monthly. Kenyan crypto firms may get their DST back at the end of the year since they already pay other local taxes.
The levy, according to Rispah Simiyu, commissioner of the Kenya Revenue Authority’s domestic taxation department, is reasonable given the country’s rapidly growing digital economy. Simiyu said the new tax is a “remarkable milestone in Kenya” and that readjusting tax collection mechanisms is urgently needed.
This would improve the moral business case for Kenyan foreign trade.”
Kenya, however, is Africa’s third largest Bitcoin (BTC) market behind Nigeria and South Africa. Kenyans have transacted $55.3 million worth of Bitcoin (5,894.8 BTC) on Paxful P2P exchange alone in the last five years. Nigeria is Paxful’s second-largest African market. Moreover, Kenyans have conflicting opinions about the new tax policies. “Enterprises functioning in the digital economy that have little or no presence in the market jurisdiction” would be subject to tax, according to PWC Kenya tax specialist Lawerence Mungai.
But he doubts it would be done “given the many approaches implemented internationally by players in the digital economy.”
Digital economy participants worried that the new tax might halt the sector’s expansion, according to a local TV station. It claimed merchants wanted more time to expand in the nation. Although the Covid-19 epidemic has hastened digitization in Kenya, the Kenya Revenue Authority introduced a contemporary tax collecting technique aligned with online business models last November. An important milestone for Kenya will be the adoption of the DST in January 2021.
The tax, enacted by the Finance Act 2020, is set at 1.5% of the gross transaction value. It will be paid by everyone who earns money in Kenya by delivering services on the digital marketplace.
The Kenya Revenue Authority moved when the government recognized that Kenyans and investors were buying cryptocurrencies to hedge against the weakening currency and the deteriorating economic circumstances caused by the coronavirus outbreak. However, the government believes in the country’s digital economy and generates tax revenue via platforms like Binance and Paxful.