Kenya’s Government proposes digital assets taxes to boost domestic revenues

Kenya is seeking to leverage the growing digital economy to boost domestic revenues and narrow its fiscal deficit amid an ongoing cash crunch. To achieve this, the East African country has proposed new taxes targeting digital assets, including cryptocurrencies and non-fungible tokens (NFTs). The proposals are contained in the Finance Bill, which if ratified, is set to take effect in the coming budget year starting July 1.

Digital assets are defined in Kenya 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 (NFTs) or any other token of similar nature, by whatever name called.”

Despite not recognizing cryptocurrencies as legal tender, the Kenyan government has softened its stance on crypto, proposing to work on a legal framework for crypto assets. Previously, the government has warned that cryptocurrencies are unregulated, highly speculative, and volatile, putting them at great risk of losing value. It has also maintained that it cannot offer any protection in the event that crypto exchanges go bust, as was recently witnessed with FTX.

Under the new tax regime, a 3% tax will be charged on the transfer or exchange value of digital assets, while content creators will pay 15% on online earnings, up from 5% withholding income tax. Cryptocurrency exchanges such as Binance and Yellow Card or persons facilitating the exchange or transfer of digital assets will be expected to withhold the tax deductions and remit them to the country’s tax authority within 24 hours. However, the exchanges must first register with the tax authority to remit such deductions.

The new bill proposed by the Kenyan government will have a major impact on the income of content creators. The bill imposes a tax on earnings made by content creators sponsored by brands to make content or do promotions, as well as income from affiliate marketing. Content creators are defined as those offering “entertainment, social, literal, artistic, educational, or any other material electronically,” through websites or social media platforms in partnership with brands or retailers.

Earnings made from subscription services, merchandise sales, eBooks, courses, or software will also be taxed. Income from membership programmes for exclusive content, licensing content, or crowdfunding for raising funds for specific goals for a content creator or another person will also be subject to taxation. These new taxes could have a significant impact on content creators who rely on their online earnings as a primary source of income. However, they may also encourage content creators to explore alternative revenue streams that are not subject to these taxes.