The cryptocurrency sector in Kenya is facing a significant challenge as players withhold billions of shillings in taxes from the Kenya Revenue Authority (KRA). This situation has arisen following a circular from the Central Bank of Kenya (CBK) that prohibited banks from dealing with businesses involved in virtual assets. The Blockchain Association of Kenya has informed the National Assembly’s Finance committee that, despite collecting taxes from clients, the sector has not remitted the three percent tax withheld from Kenyans selling digital assets.

The lobby group explained to MPs that their decision not to remit taxes from over four million Kenyans involved in cryptocurrencies like Bitcoin is a consequence of the CBK’s directive. The CBK had warned Kenyans about the use, holding, and trading of virtual currencies, stating that they are not legal tender and are unregulated digital currencies not guaranteed by any government or central bank.

Alan Kakai, the director for legal and policy affairs at the association, stated that although they had withheld the digital asset tax since its implementation on September 1, 2023, they were unable to remit it to the KRA due to the banking restrictions imposed by the CBK. He did not disclose the exact amount withheld but emphasized the association’s willingness to be regulated, taxed, and licensed to operate legally. The industry seeks to be understood better, highlighting the need for clearer regulations.

The Finance Act of 2023 introduced a three percent tax on earnings from selling digital assets, affecting both cryptocurrency holders and traders in non-fungible tokens (NFTs). Kakai urged MPs to repeal the Digital Asset Tax (DAT), arguing that taxing the Gross Fair Market Value could potentially impact loss-making entities negatively. He pointed out ongoing court cases against the Finance Act that introduced the DAT.

Kakai revealed that nearly Sh3 trillion worth of transactions occurred between July 2021 and June 2022 in Kenya. There is a pressing need for the enactment of the Digital Assets Act by July next year to address potential financial losses and prevent money laundering, emphasized Kuria Kimani, the chair of the National Assembly’s Finance Committee. The Finance Act defines digital assets as intangible items of value, including cryptocurrencies, token codes, and numbers held in digital form and generated through cryptography.