Kenya's crypto tax repeal has set the stage for smarter regulation across East Africa

Kenya’s repeal of the Digital Asset Tax (DAT) marks a decisive step forward in shaping a more practical and innovation-friendly regulatory framework for the country’s growing digital asset economy.

The repeal, part of a broader shift in approach by Parliament, which also adopted the key proposals from of the Virtual Assets Chamber of Commerce, which consisted of various industry participants’ inputs such as Binance, the largest crypto exchange in the world, including various regional and local Virtual Asset Service Providers (VASP) such as Kotani Pay, Swypt, Yiski, HoneyCoin, Busha and more. 

The now-repealed DAT, introduced in the Finance Bill, initially applied a flat 3% levy on all digital asset transactions, regardless of whether they involved actual profits and regardless of the types of assets.

This included everything from speculative trades to simple wallet-to-wallet transfers, as well as token-based rewards. In effect, the policy attempted to tax digital infrastructure rather than taxing the value derived, a model that quickly proved unworkable for both users and service providers. 

Startups, already operating in a volatile market and on thin margins, were disproportionately affected even though the 3 per cent DAT was reduced to 1.5 per cent.

Many paused operations or began exploring relocation to jurisdictions such as Mauritius, South Africa, or the UAE, where regulatory environments are more accommodating and tax models are more aligned with international standards.

The complexity and ambiguity around what constituted a taxable event only compounded the problem, leading to either overcompliance or quiet exits from the market.

The repeal of this tax, and its replacement with a 10% levy applied only to the service fees or commissions earned by VASPs, reflects a more thoughtful, targeted approach to digital asset taxation.

It ensures that value is taxed where it is created and that compliance is both practical and enforceable. This model not only aligns with international best practices but also demonstrates that Kenya is serious about nurturing its innovation economy.

Importantly, this shift didn’t happen in a vacuum. It was the product of two years of sustained public engagement and policy dialogue, spearheaded by the Virtual Assets Chamber of Commerce with support from key ecosystem players, such as Binance and Bowmans.

By participating in open consultations, educational workshops, submitting tax studies, parliamentary representations and helping clarify the practical implications of proposed laws, industry actors played a critical role in bridging the gap between innovation and regulation.

With the recent assenting of the Finance Act and the VASP Bill expected to be made law by the end of 2025, pending further possible adjustments, Kenya signals their willingness to collaborate with industry and adapt favourable tax policy to stimulate the regional crypto sector whilst it simultaneously gears towards its removal from the FATF grey list.

Kenya is now leading the race in the continent for creating robust, future-ready digital asset frameworks with impacts that extend beyond its borders.

The rest of East Africa is watching. Countries like Ethiopia, Tanzania, and Rwanda, all with rapidly evolving fintech landscapes, now face a clear choice. They can either follow Kenya’s example and work toward fair, collaborative, and well-calibrated crypto regulations or risk stalling innovation with policies that are overly punitive, unclear, or poorly enforced.

What Kenya has demonstrated is that effective regulation doesn’t have to come at the cost of growth. By taxing real income instead of basic infrastructure, offering legal clarity through a dedicated VASP Bill, and considering incentives like VAT exemptions for early-stage digital asset activities, governments can unlock new investment, encourage formalisation, and position their economies at the forefront of Africa’s digital future.

 Kenya’s digital economy is like a garden. Overwater it, and it floods. Neglect it, and it withers. But with the right mix of regulatory clarity, proportionate taxation, and open stakeholder dialogue, it will flourish, creating jobs, deepening inclusion, and opening up new channels of economic opportunity.

 East Africa doesn’t need to reinvent the wheel. It just needs to look next door.

Faustine Ngila is a global tech journalist based in Nairobi.