Crypto, influencers targeted in Kenya's new tax bid
Kenya is proposing new taxes targeting the digital economy in a bid to grow domestic revenues and narrow its fiscal deficit in response to the ongoing cash crunch.
The East African country plans to charge a 3% tax on the transfer or exchange value of digital assets, while content creators will pay 15% on online earnings up from 5% withholding income tax. If the proposals in the finance bill are ratified, the taxes will take effect in the coming budget year, which begins July 1.
Cryptocurrency exchanges like Binance or Yellow Card or persons facilitating the exchange or transfer of digital assets are expected to withhold the tax deductions and forward them to the country’s tax authority within 24 hours. The exchanges must, however, first register with the tax authority in order to remit 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 through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration that can be transferred, stored or exchanged electronically; and a non-fungible token (NFTs) or any other token of similar nature, by whatever name called.”
Currently the Kenyan government does not recognize crypto as a legal tender, and has in the past sternly warned that they are unregulated, and highly speculative and volatile, which puts them at a great risk of losing value. The government has also variously asserted that it cannot offer any protection in the event that crypto exchanges go bust, as was recently witnessed with FTX.
However, over the last few months Kenya has softened its stance on crypto, proposing to work on a legal framework for crypto assets, as it moves to tap the growing cryptocurrency adoption.
Kenya is ranked second in Africa (19th globally) after Nigeria in terms of crypto adoption, and fifth globally in terms of peer to peer (P2P) exchange trade volume, according to 2022 Chainalysis report.
Pertaining to content creators, the new bill imposes a tax on earnings made by a content creator sponsored by a brand to make content or do promotions, and income from affiliate marketing.
It defines content creators as those offering “entertainment, social, literal, artistic, educational or any other material electronically,” through websites, social media platforms like Facebook, Twitter or Instagram, in partnership with brands or retailers.
Earnings made by offering “subscription services where the audience pays a periodic fee to access the content and support the content creator, or merchandise sales where physical goods and services are sold featuring a logo, brand or catchphrase to the audience of the content creator, eBooks, courses, or software,” will also be taxed.
Also not spared is income from “membership programs for exclusive content including early access, licensing the content including photographs, music or other businesses or individuals for use in the user’s own projects; or crowdfunding for raising funds for specific goals for a content creator or another person.”
Updated to include Chainalysis 2022 findings