Why gov’t is halving digital assets tax on crypto, NFTs to 1.5%

The National Treasury is slashing the three
per cent levy on digital assets trade introduced in 2023 by half to
1.5 per cent in the 2025 Finance Bill.

A digital asset is anything
identifiable that is created and stored digitally and has or provides value. The tax has targeted people dealing in cryptocurrencies
and non-fungible tokens (NFTs), data, images, videos and written content.

Treasury Cabinet Secretary John Mbadi on
Tuesday said the reduction to the levy, first introduced in the 2023 Finance
Bill, aims to align it with the 1.5 per cent turnover tax levied on businesspeople
whose gross turnover is between Ksh.1 million and Ksh. 25 million a year.

“Digital asset tax will be reduced from 3%
to 1.5 per cent in the new budget. That is because we have turnover tax for
small businesspeople, which was reduced to 1.5 per cent,” Mbadi told Citizen TV’s
The Explainer program.

The minister said crypto traders have been
pushing for a lower levy.

“The argument from players in the digital
space has been that they are largely small businesspeople, hence the need for
uniformity. Both will now be 1.5 per cent,” said Mbadi, adding that the move also
aims to enhance tax compliance.

“When you have lower rates on consumption
taxes, you raise more revenue, which in turn enhances revenue collection.”

Kenyan law defines a digital asset as
“anything of value that is not tangible and cryptocurrencies, token code,
number held in digital form and generated through cryptographic means or
otherwise, by whatever name called, providing a digital representation of value
exchanged with or without consideration that can be transferred, stored or
exchanged electronically, and a non-fungible token or any other token of
similar nature, by whatever name called.”

Crypto, a digital currency secured by
cryptography on decentralised networks using blockchain technology, has
continued to gain popularity globally in recent years.

Examples are Bitcoin
and Binance, mostly used to preserve savings, pay for
goods and services internationally, and make remittances.

But while crypto and digital currency
broadly are still not mainstream in Kenya compared to other disruptive digital
financial services like mobile money, the government has painted a huge
potential for the sector, which has an estimated four million users, according
to UNCTAD figures.

In recent months, Kenya has moved to
regulate the sector by introducing proposals requiring cryptocurrency firms
operating in the country to set up local offices and appoint directors subject
to approval by a regulatory body such as the Capital Markets Authority (CMA).

The Kenya Revenue Authority
(KRA) has additionally said it will introduce a new tax system integrating real-time crypto
transaction monitoring to tap into – and catch tax cheats and criminals in –
the local crypto sector.

Across Africa, Nigeria, touted as home to
Africa’s largest cryptocurrency market, is amending regulations to allow
cryptocurrency trading and digitised transactions to be taxed.

South Africa, meanwhile, granted crypto a
legal status and added crypto companies to a list of accountable
institutions in 2022. 

To date, it has issued over 240 licenses to
virtual assets service providers and imposes an 18 per cent capital gains tax
on crypto-to-crypto trades and payments for goods or services.