Kenya is proposing new taxes targeting the digital economy in an effort to grow domestic revenues and reduce the budget deficit in response to the ongoing cash crisis.
The East African country plans to levy a 3% tax on the transfer or exchange value of digital assets, while content creators will pay 15% on online earnings, instead of a 5% withholding tax. If the proposals in the financing law are ratified, the taxes will go into effect in the next fiscal year, which starts on July 1.
Cryptocurrency exchanges such as Binance or Yellow Card or individuals facilitating the exchange or transfer of digital assets are expected to withhold the tax deduction and forward it to the country’s tax authorities within 24 hours. However, the exchanges must first register with the tax authorities to pay such deductions.
Kenya defines digital assets as “anything of value that is not tangible and cryptocurrencies, token code, number held in digital form and generated by cryptographic means or otherwise, under any name whatsoever, providing a digital representation of value that is exchanged with or without consideration that can be electronically transferred, stored or exchanged; and a non-fungible token (NFTs) or other token of a similar nature, by any name.”
Currently, the Kenyan government does not recognize crypto as legal tender and has issued stern warnings in the past that they are unregulated and highly speculative and volatile, putting them at high risk of losing value. The government has also claimed in various ways that it cannot provide any protection in the event that crypto exchanges go bankrupt, as was recently shown with FTX.
However, in recent months, Kenya has softened its stance on crypto and suggested working on it a legal framework for crypto-assetsas it moves to leverage the growing adoption of cryptocurrency.
According to the 2022 Chainalysis report, Kenya ranks second in Africa (19th globally) after Nigeria in terms of crypto adoption, and fifth globally in terms of peer-to-peer (P2P) exchange volume.
With regard to content creators, the new bill imposes a tax on income from a content creator sponsored by a brand to create content or do promotions, and income from affiliate marketing.
It defines content creators as those who “provide entertainment, social, literal, artistic, educational or other materials electronically” through websites, social media platforms such as Facebook, Twitter or Instagram, in partnership with brands or retailers.
Revenue made from the provision of “subscription services where the public pays a periodic fee to access the content and support the content creator, or merchandise sales where physical goods and services are sold with a logo, brand or slogan to the audience of the creator of the content, eBooks, courses or software’, are also taxed.
Also not spared is revenue from “exclusive content membership programs, including early access, licensing of the content, including photos, music, or other companies or individuals for use in user’s own projects; or crowdfunding to raise money for specific causes for a content creator or other person.
Updated with the findings of Chainalysis 2022
Crypto, influencers targeting Kenya’s new tax bid by Annie Njanja, originally published on MinRegion