Kenya’s Unexpected Crypto Tax Could Stifle Innovation

(3 Minutes Read)

Kenya’s bold step to tax digital assets has yielded a substantial return for the government, with the Kenya Revenue Authority (KRA) reporting Sh10 billion in revenue over the last financial year—a milestone noted by former KRA chair Anthony Mwaura.

Yet, beneath this fiscal success, concern is mounting within the crypto industry. Sector players warn that the tax framework introduced under the Finance Act 2023 could stifle innovation, deter investment, and push legitimate crypto firms out of the country.

Central to the debate is the 1.5% Digital Asset Tax, whose broad application—covering everything from speculative tokens and stablecoins to wallet-to-wallet transfers—has raised alarms. Critics argue the law fails to differentiate between distinct transaction types, leading to confusion and unintended burdens on the sector.

“The issue isn’t taxation itself,” said Larry Cooke, Legal Counsel for Binance Africa. “It’s about targeted, logical taxation. Blanket levies on all crypto transactions are unfeasible and risk driving innovation away.”

The law mandates platforms to evaluate, convert, and remit taxes on every asset movement within five working days—a task even major global exchanges struggle with. Local startups face even steeper operational and compliance challenges.

“We’re still unclear on basic questions: What exactly is taxable? Who owes the tax? When does a taxable event occur?” said Allan Kakai, Legal Head at Steakhouse Financial and Director at the Virtual Assets Chamber of Commerce. “Ambiguity leads to either overcompliance or market withdrawal—both detrimental outcomes.”

Industry leaders are advocating for a more practical model: tax crypto activity only at the fiat on-ramp and off-ramp stages. This approach, they argue, would reduce complexity, improve compliance, and still secure government revenue.

“If the tax structure is clear and predictable, compliance will increase,” added Cooke. “Trying to apply taxes to peer-to-peer wallet transfers or volatile asset movements simply doesn’t work.”

These concerns surface as Parliament prepares for the second reading of the Virtual Assets and VASP Bill in June 2025. While the bill aims to establish a comprehensive regulatory framework, industry voices stress that tax enforcement mechanisms must be realistic and growth-oriented.

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Binance, which operates with caution in Kenya, has complied with all tax filing requirements and continues to engage with regulators to push for a more viable system. “Kenya has a thriving crypto ecosystem and the potential to lead Africa in digital asset regulation,” Cooke emphasised. “But innovation can’t thrive under unclear, punitive rules.”

Stakeholders are urging policymakers to collaborate with platforms, legal experts, and civil society to co-create a balanced tax framework—one that protects public interests while fostering digital innovation and economic inclusion.