According to a Kenyan media report, Kenya will start taxing cryptocurrency exchanges for commissions they receive from the over four million people dealing in digital currencies in the country if fresh regulations are adopted.

The new regulations guiding the payment of the digital service tax require platforms that facilitate the buying and selling of cryptocurrencies and other digital assets to pay a 1.5 percent duty.

“For the purposes of these regulations, a taxable electronic, Internet or digital marketplace supply include, facilitation of online payment for, exchange or transfer of digital assets excluding services exempted under the Act,” stated the Value added Tax (Electronic, Internet and Digital Marketplace Supply) Regulations, 2023 published by Treasury Cabinet Secretary Njuguna Ndung’u.

Kenya introduced a 1.5 percent digital service tax in January 2021, which aimed to curb tax avoidance by some multinational companies. The tax applies to a wide range of digital services, including online marketplaces, streaming services, and mobile money transactions.

However, in April 2023, Kenyan President William Ruto informed investors that Kenya would do away with the 1.5% tax on digital services that was levied against multinational corporations operating locally and instead adopt the Organization for Economic Cooperation and Development’s (OECD) 2024 global framework on taxing multinational corporations.

Online exchanges typically charge fees for buying and selling cryptocurrencies which can range from 0.9 – 4.9%. According to the Business Daily, the sector is not regulated in Kenya and remains largely unregulated even in the developed world.

According to a United Nations Conference on Trade and Development report released in June last year, 8.5 percent of the population, or 4.25 million people own cryptocurrencies in the country. This places Kenya ahead of developed economies such as the United States, which is ranked sixth with 8.3 percent of its population owning digital currencies.

According to The Business Daily, young and small traders have in recent years flocked to cryptocurrencies in the hope of quick returns, despite warnings from regulators such as the Central Bank of Kenya (CBK) that emerging assets can be high-risk.

While there is growing adoption in the country, the Central Bank of Kenya (CBK) Governor, Patrick Njoroge in an advisory to Kenyans noted that cryptocurrencies posed risks to financial stability but they could be used to solve problems such as bringing the poor into the financial system or cutting transaction costs.