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Kenyan crypto firms on notice as digital tax law takes effect

Kenya’s planned Digital Service Tax (DST), came into effect at the start of 2021.

The DST is part of the country’s 2020 revamped Finance Act that focused on the digital services market among other sectors. 

According to the provisions of the new tax regime, e-market transactions including cryptocurrency payments now attract a 1.5% levy.

According to Cointelegraph, Reginald Alango, a Kenya country representative at non-custodial peer-to-peer crypto exchange Bitzlato, stated that the new tax policy prescribes a 1.5% tax on the gross transaction value of every crypto sale.

Alango stated:

“With regards to it having negative impact on crypto adoption in Kenya, I do not believe so as there are so many factors that are driving the rapid growth of crypto in East Africa and the youth are on the forefront pushing this. However, it’s still early to make a prediction but this is something that can monitored after the first quarter [of 2021].”

The DST will serve as the final tax payment for non-residents and companies not domiciled in the country, according to the Kenyan Revenue Authority (KRA). Residents and companies with offices in the country will see their DST payments offset against any income taxes levied throughout the year.

Kenya’s policymakers say the new tax policy will do little to affect digital services startups in the country. The KRA also explained that the DST will ensure that foreign firms remit part of their earnings in the country to the government.

The new policy places Kenya among the group of countries officially levying taxes on crypto transactions. Nonetheless, cryptocurrencies are yet to obtain any legal status in the country.

For Alango, the new law does little to advance the official recognition of cryptos in the country:

“A lot of things have to be considered if Kenya is to legalize cryptocurrency and as we currently speak the Central Bank of Kenya does not recognize it despite the fact that Kenya is ranked third in Africa in terms of Bitcoin market.”

Crypto’s lack of a clear-cut legal status in Kenya is symptomatic of the slow pace of cryptocurrency regulations on the continent. Nevertheless, with crypto transactions becoming more popular, Kenya’s central bank is allegedly exploring the possibility of creating a sovereign digital currency.

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