Representatives of the Kenya’s blockchain industry have challenged the 3% Digital Asset Tax (DAT) on virtual assets and several provisions in the proposed crypto bill — claiming it exceeds global standards and warning that it could cripple the nascent sector and drive away international investors.
- •Members of the Virtual Asset Chamber of Commerce (VACC) met officials from the National Treasury during a consultative workshop at the Lake Naivasha Crescent Hotel, where they raised concerns about the tax and other provisions in the proposed Virtual Asset Service Provider (VASP) Bill.
- •The stakeholders beefed up their opposition to the tax by providing an example of Indonesia — the only other country with a similar tax — which imposes a rate of just 0.1% to 0.2% on virtual assets.
- •They also pointed out that the bill broadly assigned roles to “Relevant Regulatory Authorities,” but lacked clear definitions of their responsibilities.
“The industry cannot survive a tax that is ten to thirty times higher than standard exchange trading fees and far exceeds our customers’ profit margins. This tax threatens to make the industry fundamentally unviable, leaving regulators with nothing to regulate or tax,” said Allan Kakai, a Director at the VACC during his presentation to the National Treasury.
In November last year, KRA announced that it collected KSh 10 billion from crypto dealers in the financial year ended June 2024. This was facilitated by the 3% tax on the transfer and exchange of digital assets introduced in the Financial Act 2023.
Stakeholders are also concerned that the ambiguous proposals of the VASP Bill could suppress the adoption of cryptocurrency and innovation in the sector. During the stakeholder session, they highlighted several regulatory gaps that could shape the bill’s final version.
Although the crypto bill shows that the government has adopted a positive approach to cryptocurrency and other virtual assets, there are glaring gaps in the proposed regulations — especially on foreign VASPs, peer-to-peer (P2P) trading, and Blockchain startups.
Who does what?
Despite naming both the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA) as regulators, their specific roles were left out prompting concerns on responsibility overlaps, confusion, and inefficiencies. VACC suggests defined roles for both of both entities— proposing CBK to explicitly handle payment services and CMA overlook tokenized securities.
VACC also recommended the establishment of a coordination mechanism (such as a Regulatory Sandbox or a Joint Committee) to guide the implementation of different regulatory activities. It flagged the absence of a regulatory sandbox— a controlled environment that allows startups to test products before full compliance — was flagged as a shortfall in the government’s part.
Compliance Burdens and Uncertainty
The bill attempts to classify VASPs into categories such as payment processors and brokers but does not explicitly address stablecoin issuers. This oversight is significant, given the increasing use of stablecoins in Kenya’s fintech ecosystem, particularly for remittances and cross-border transactions. Without clear guidelines, businesses dealing with stablecoins could face uncertainty over their regulatory status.
Another contentious point is the treatment of foreign crypto firms. Under the bill, international VASPs must obtain a Kenyan license to operate in the country. While this ensures compliance with local laws, it is likely that the requirement will discourage global firms from entering the market. Kenya has been a hub for crypto adoption in Africa, and overly restrictive licensing rules could push businesses to other jurisdictions.
The bill did not determine how licensing fees would be set, a potential barrier to crypto firms intending to operate in the country. The stakeholders proposed a tiered licensing structure based on company size and risk. They also want the government to cap penalties and introduce a grace period or compliance support for new entrants in order to prevent high cases of non-compliance.
For startups in the sector, the compliance burden could be steep. The bill proposes penalties of KSh 20 million for companies and KSh 10 million for individuals found operating without a license. VACC argues that such high costs could deter early-stage companies and drive innovation underground.
Challenges for P2P Trading and Crypto Platforms
Kenya’s crypto sector has been driven largely by peer-to-peer (P2P) transactions, with platforms like Binance and Paxful enabling direct asset exchanges. The bill exempts individual traders from licensing but introduces ambiguity around escrow service providers — platforms that facilitate but do not directly custody funds. If classified as VASPs, such platforms could face regulatory requirements that would disrupt Kenya’s vibrant P2P economy.
Regulators have emphasized the need for oversight to curb fraud and illicit transactions. However, stakeholders warned that unclear language could ostensibly lead to unintended restrictions on platforms that play a vital role in facilitating secure crypto transactions.
Another area of concern is the bill’s preference for corporate entities over individuals when issuing licenses. While this ensures accountability, it raises questions about the treatment of crypto educators, influencers, and content creators who promote digital assets.
If not explicitly exempted, such individuals could face legal repercussions despite not engaging in direct financial transactions. VACC wants the crypto bill to define thresholds for promotional activities that could require registration but prefers the introduction of disclosure requirements rather than outright registration for individuals promoting VASPs.
Striking The Right Balance
The bill’s introduction marks a significant step toward formalizing Kenya’s digital asset industry. However, key issues — ranging from regulatory overlap to innovation risks — need to be addressed before it is enacted.
Stakeholders have called for further engagement to refine the bill, particularly on stablecoin regulations, licensing flexibility, and clearer exemptions for P2P platforms. The government faces the challenge of balancing consumer protection with policies that encourage investment and technological growth.
If Kenya succeeds in crafting a balanced framework, it could position itself as a leading crypto hub in Africa. But if the regulations become too rigid, businesses and investors will avoid the market; limiting the country’s potential in the fast-evolving digital asset space.
