Kenya Expects to Earn $46 Million as New Tax Targeting Crypto Exchanges Comes Into Force

The Kenya Revenue Authority (KRA) is expecting to earn up to 5 billion Kenyan shillings ($45.5 million) during the first half of 2020 from a new tax that targets cryptocurrency exchanges and other online services, according to a top KRA official.

First proposed in August 2020, the digital service tax (DST) came into force on Jan. 2 amid concerns over implementation. The tax is charged at the rate of 1.5% on gross transaction value with every crypto sale.

Both local and foreign digital asset exchanges operating in the country will also pay the tax to the Kenyan government. Foreign exchanges like peer-to-peer platform Paxful and Binance will be required to pay the tax each month.

However, Kenyan crypto businesses have the option of claiming back their DST at the end of each year since they are already subject to paying other local taxes.

According to Rispah Simiyu, commissioner of the domestic taxes department at the Kenya Revenue Authority, the tax is an appropriate response to the growth of digital activity in the East African country, the continent’s third largest crypto economy.

She projected that the DST will earn the Kenyan government $45.5 million in revenue for the first six months of this year, as per her recent op-ed article for Business Daily, a local newspaper. Simiyu noted that the new tax represents a “remarkable step for Kenya,” adding:

[The increasingly digital marketplace] is a promising platform for revenue generation, and realignment of tax collection mechanisms is of urgent necessity. It provides an avenue for multinationals to contribute to the growth of the country where they derive their income. This will strengthen the moral business case for international commerce as practiced in Kenya.

Kenya is ranked as the third biggest bitcoin (BTC) market in Africa after Nigeria and South Africa. On the Paxful P2P exchange alone, Kenyans have traded $55.3 million worth of bitcoin, or 5,894.8 BTC, over the past five years. The country is Paxful’s eighth largest market in the world, only exceeded by Nigeria in Africa.

Meanwhile, the new tax measures have been received with mixed feelings from inside Kenya. Lawrence Mungai, a tax expert with PWC Kenya, said the country intends to bring “under the tax net enterprises operating within the digital economy that have little or no presence in the market jurisdiction.”

However, he’s unsure if this goal will be achieved “in light of the different models adopted globally by stakeholders in the digital economy.” A local TV station reported that players in the digital economy warned that the “new tax might derail growth” of the nascent sector. It said that traders had asked for more time to grow.