Kenya expects to earn $46 million from the Cryptocurrency Exchanges Tax.

According to a senior KRA official, the Kenya Revenue Authority (KRA) intends to collect up to 5 billion Kenyan shillings ($45.5 million) during the first half of 2021 from a new tax that targets cryptocurrency transactions between users and other online businesses.

Despite worries about the introduction of the digital services tax (DST), which was implemented on January 2 amid concerns about the implementation of the crypto exchanges tax (which was originally suggested in August 2020), the digital services tax (DST) has been in effect since August 2020. The tax is levied at a rate of 1.5 percent on the gross transaction value of each cryptocurrency sale, and it is applicable to both local and international digital asset exchanges operating in Kenya. The tax will be paid to the Kenyan government by the exchanges themselves. Payment of the levy will be needed on a monthly basis by peer-to-peer exchanges such as Binance and Paxful. In contrast, Kenyan cryptocurrency companies may claim their DST back at the end of each year since they are already required to pay other local taxes in addition to DST.

In the opinion of Rispah Simiyu, commissioner of the domestic taxes department at the Kenya Revenue Authority, the tax is a necessary response to the exponential growth of digital activity in the East African country, which is the continent’s third-largest crypto economy. She predicted that the DST would generate $45.5 million in revenue for the Kenyan government in the first six months of this year. “This is a remarkable step forward for Kenya,” Simiyu stated, adding that the increasingly digital marketplace is a promising platform for revenue generation, and that realignment of tax collection mechanisms is an urgent necessity. The new tax provides an avenue for multinational corporations to contribute to the growth of the country from which they derive their income.

This would help to enhance the moral business case for international trade, which is already being done in Kenya.”

Kenya, on the other hand, is rated as the third largest Bitcoin (BTC) market in Africa, behind only Nigeria and South Africa in terms of volume. Kenyans have exchanged $55.3 million worth of Bitcoin (or 5,894.8 BTC) on the Paxful P2P exchange alone during the last five years, according to the exchange. The nation is the eighth biggest market in the world for Paxful, with only Nigeria as the greatest market in Africa. Kenyans, on the other hand, have had varied reactions to the new tax policies that have been implemented. Government officials aim to put “within the tax net business functioning inside the digital economy that has little or no presence in the market jurisdiction,” according to Lawerence Mungai, a tax specialist at PWC Kenya.

However, he is doubtful that this objective would be accomplished “in light of the many models that have been implemented worldwide by players in the digital economy,” according to him. According to a local television station, “players in the digital economy have warned that the new tax may impede the development” of the fledgling industry as a result of the new levy. It said that merchants have requested additional time to expand their businesses in the nation. However, despite the fact that the Covid-19 pandemic has accelerated the paradigm shift digitalization in Kenya, the evolution of the digital marketplace has prompted the Kenya Revenue Authority to introduce a modern tax collection mechanism that is compatible with online business models in November last year. Kenya will take a major stride forward with the implementation of the digital service tax (DST) in January 2021.

Taxation of the total transaction value would be charged at a very modest 1.5 percent rate under the Finance Act 2020, which was recently passed by the legislature. It will be due by anybody, resident or non-resident, who derives or earns money in Kenya as a result of offering a service on the digital marketplace, regardless of residency status. As previously stated, the Kenya Revenue Authority took action when the government became aware of an increase in cryptocurrency ownership among Kenyans and investors as a hedge against the weakening of the Kenyan currency and the deteriorating economic circumstances caused by the coronavirus epidemic. The government, on the other hand, believes it is appropriate to collect taxes via platforms like as Binance and Paxful and to have complete trust in the country’s digital economy.

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