The Blockchain Association of Kenya goes to court to block taxes on crypto

A  law seeking to tax crypto exchanges is met with opposition from Kenya’s Blockchain Association.

The Blockchain Association of Kenya (BAK) wants to block the implementation of the Digital Asset Tax (DAT) introduced a few months ago as part of the Finance Act 2023. The case will be mentioned in court on September 28. 

The new tax, which will take effect from September 1, is part of the many taxes introduced in the Finance Act 2023, with some focused on expanding the tax net in the digital space. The tax provisions outlined in the already-signed act seek to create extra income of up to $2 billion for the Kenyan government. 

The BAK explained the rationale for its petition challenging the law’s legality: “We are deeply committed to advocating and lobbying for a conducive environment for innovation while ensuring legal clarity. Our petition addresses concerns about the DAT’s impact on our industry and the broader economy.”

According to the legal and policy director at BAK, Allan Kakai, DAT has been introduced as income tax, yet it is imposed on the gross value of the asset instead of gains and profits. “This means that people in a loss-making position will still pay the tax. It’s is unfair and inequitable to impose a tax on losses,” he told TechCabal. 

The Finance Act introduced DAT for earnings from digital asset transfers. A digital asset is defined as intangible value, including crypto

and digitally-represented tokens exchangeable electronically. Non-resident platform owners for asset exchange must register under a simplified tax scheme, like Digital Services Tax. Under this law, platform owners would deduct 3% of the asset’s value as DAT. Non-resident owners must remit this tax within 24 hours, along with the required details. The 24-hour remittance requirement could be burdensome for some, and taxing turnover rather than gains might discourage digital asset trading.

The Blockchain Association of Kenya argues that the law may hinder the growth of services associated with blockchain and crypto by crippling innovation. “The core focus of the petition is to thoroughly examine the legal and constitutional dimensions surrounding the imposition of this tax on digital assets,” the association said in a statement posted on X (formerly Twitter).

The Finance Act 2023 has since started taxing online content creators. It had previously enforced a 15% withholding tax on earnings from digital content monetisation. Kenya’s parliament later reduced this to 1.5%. Starting from July 1, whenever a content creator is paid for their work, the client must withhold 1.5% of the payment and send it to tax authorities. This change intends to expand taxation to cover digital content enterprises, acknowledging their substantial growth in recent times.

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