Blockchain Users in Kenya Goes to Court to Block Taxes on Crypto

Kenya's Blockchain Association (BAK) is challenging a new Digital Asset Tax (DAT) introduced as part of the Finance Act 2023. The DAT, set to take effect from September 1, is a part of several digital space taxes aimed at expanding the tax net and generating up to $2 billion in revenue for the Kenyan government.

BAK is raising legal opposition to the DAT's implementation, which they argue is problematic for various reasons. The tax is levied on the gross value of assets, regardless of whether they result in gains or losses. This means that even those in a loss-making position would still be subject to the tax, which BAK sees as unfair.

The Finance Act 2023 introduced the DAT for earnings from digital asset transfers. It defines a digital asset as intangible value, including cryptocurrencies and digitally-represented tokens that are exchangeable electronically. Under this law, non-resident platform owners involved in asset exchange must adhere to a simplified tax scheme, similar to the Digital Services Tax. They are required to deduct 3% of the asset's value as DAT and remit it within 24 hours, along with the necessary details. BAK contends that this 24-hour remittance requirement may be overly burdensome for some, and taxing turnover rather than gains could discourage digital asset trading.

The Association fears that the DAT could hinder the growth of blockchain and crypto-related services by stifling innovation. Their petition seeks to examine the legal and constitutional dimensions surrounding the imposition of this tax on digital assets. Furthermore, the Finance Act 2023 also taxes online content creators, with a 1.5% withholding tax imposed on earnings from digital content monetization starting from July 1. This change reflects the government's effort to broaden its taxation scope to encompass the growing digital content sector.

The BAK's legal challenge will be presented in court on September 28, aiming to address concerns regarding the DAT's impact on both the blockchain and broader economic landscape.