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Crypto exchanges operating in Kenya have been relieved from paying the Digital Asset Tax (DAT) introduced under the 2023 Finance Act. The 3% tax on revenue from cryptocurrency and digital asset trading, which took effect in September 2023, was declared unconstitutional by the Kenyan Court of Appeal on Wednesday.
The DAT was levied on crypto exchanges like Kotani Pay and AZA Finance (formerly BitPesa), and required taxes to be remitted within five working days, accompanied by a detailed tax return. According to a crypto executive who spoke to TechCabal on condition of anonymity, no local cryptocurrency exchange had complied with the tax before the court ruling, although they had received payment notices prior to the decision.
The DAT was part of Kenya’s effort to regulate its burgeoning digital asset market, which is the second largest in Africa after Nigeria. Additionally, over 350,000 Kenyans had registered for the cryptocurrency project Worldcoin before its suspension in August 2023.
Critics, including executives from the Blockchain Association of Kenya (BAK), argued that a tax based on transaction gains or income, which accounts for potential costs and losses, would have been more appropriate given the volatile nature of cryptocurrencies. BAK had sought to block the DAT in court, but the case is now moot following the ruling.
Some experts suggested that aligning the DAT rate with the existing 1.5% Digital Service Tax (DST), introduced in the 2020 Finance Act, could have been a more feasible approach. The DST applies to income from online marketplace services in Kenya.
The court also criticized the short tax remittance deadline as a significant burden, increasing compliance costs for taxpayers.
The three-judge panel ruled that the amendments to the Income Tax Act, Value Added Tax Act, Excise Duty Act, Retirement Benefits Act, and Export Processing Zones Act introduced by the 2023 Finance Bill were unconstitutional due to a lack of adequate public participation.
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