Blockchain Association of Kenya drags government to court over crypto tax

The Blockchain Association of Kenya (BAK) yesterday filed a petition before the High Court of Kenya to challenge the digital asset tax, an amendment to Kenya’s Finance Act 2023.

The new regulation slated to take effect today, September 1, imposes a 3% tax on income generated from the transfer or exchange of digital assets. 

The details 

• BAK holds the view that the newly introduced regulation is stringent and carries the potential to impede growth and innovation within the industry.  
• The organization filed the petition before Honorable Lady Justice M. Thande of the High Court of Kenya and is scheduled for hearing on September 28. 
• In a press release obtained on social media, BAK said it aims to examine the legal and constitutional basis for the Kenyan government’s imposition of taxes on digital assets. 

Key quote 

• BAK said: 

“The Blockchain Association of Kenya (BAK) has officially filed a petition before the High Court of Kenya challenging the legality and constitutionality of the digital asset tax (DAT) … Our petition aims to address concerns about the DAT’s in both our industry and the broader economy.” 

BAK’s angle 

• In a conversation with Mariblock, S.A. Kakai BAK’s legal, regulatory and policy affairs director discussed the suit and the organization’s position.  
• Kakai explained that BAK’s discontent with the new law arises from several vital concerns, one of which pertains to the tax being calculated based on the total value of assets exchanged, irrespective of whether such exchanges result in a profit or loss. 
• He added that the five-day ultimatum given to exchanges to remit taxes collected is impossible at best.  

“Despite being an income tax, the impugned digital asset tax is imposed on the gross value of the digital asset. This places a tax liability even on transactions that result in a net loss rather than focusing solely on the taxation of gains and profits.

“[Secondly], the requirement on the digital asset platforms (tax agents) to remit DAT within the extremely narrow five-day remittance window imposes an onerous, impractical and impossible compliance risk on the crypto platforms [which] are required to act as tax agents by collecting and remitting the tax to Kenya Revenue Authority.” 

• Kakai pointed out the inconsistency between the new law and the Central Bank of Kenya’s position on cryptocurrencies. The Bank still refrains from acknowledging cryptocurrencies and has taken measures such as closing accounts associated with cryptocurrency transactions. 

“It is impossible for the tax agents to comply with the tax remittance obligations given that the cautionary notices issued by the Central Bank of Kenya (CBK) are still in place. Tax can only be paid in Kenyan shillings through Kenyan bank accounts,” he said. 

Zoom out 

Kenya is ranked fifth globally for peer-to-peer crypto transactions and 19th for crypto adoption. Kakai expressed fears that the country might lose ground on its promising crypto ecosystem due to government regulations. He said:

“Kenya is a globally recognized hub of innovation, dubbed the Silicon Savannah for having one of the fastest growing technology and innovation ecosystems in Africa. We are losing the mark as a country and shedding off the pride we have built for the past decade. We need to remember who we are and nurture innovation.”