The government has proposed to cut tax on digital asset transactions by 50 per cent, even as experts warn that the new corporate or VAT levies could still discourage builders. 

The proposal in the FY 2025/26 budget will see tax on digital assets cut by three per cent to 1.5 per cent, marking a significant policy shift to support the rapidly growing digital asset space. 

According to the National Treasury, the move is aimed at balancing tax revenue collection with a conducive environment for blockchain-based businesses. 

Potential negative impacts 

While the move may sound like a reprieve for industry players, it could also have some potential negative impacts, especially for cryptocurrency developers, service providers, as well as users. 

Larry Cooke, Head of Legal for Binance Africa, said while tax reduction is a positive signal, the goal should be to foster an ecosystem where builders want to stay, not where they feel forced to live.  

“The digital asset tax, unfortunately, that’s something that determines whether it’s a make or break for Kenya to really spearhead this industry,” he warned while speaking at the third edition of the Kenya Blockchain and Crypto Conference in Nairobi. 

According to industry experts, the reduction in levies will possibly attract more users to digital assets, further increasing Kenya’s crypto market, which is projected to reach 733,300 by the end of this year. 

As such, there are high chances of increased online fraud and scams, hence the increased concern for stronger compliance frameworks and policies. Given the increased adoption and activity, especially by small players, the Kenya Revenue Authority (KRA) might be compelled to enhance its monitoring and enforcement capacity to prevent revenue leakage, owing to fraud. 

Cooke highlighted the importance of timely and balanced regulation, given the high rate at which the reduced tax levy will attract users into the space. 

“Effective regulation must be timely. Overregulation kills progress, while underregulation creates loopholes,” he said. 

More notably, there is the fear of tax competition from other African countries, which could risk Kenya losing innovators and even developers to more competitive markets. 

KRA Digital Economy Tax Officer Nickson Omondi, who was also present at the conference, insisted that the agency is not just about revenue collection but also about demystifying taxation, educating the public and ensuring fairness. 

“KRA is not just about revenue collection alone. We also play a critical role in tax education, and it is through such events that we get to highlight how we address tax issues around blockchain technology, cryptocurrencies, and the digital economy in general,” he explained.