Cryptocurrency is a digital currency that operates through a decentralised computer network using blockchain technology.
The first cryptocurrency was created in the 1980s by cryptographer David Chaum through Digicash using cryptographic techniques to ensure privacy. Digicash later failed commercially due to centralised control and lack of adaptation.
Cryptocurrency has taken the world through a boom where economies have to make changes to adopt the new currency. Many countries have had to amend and introduce tax laws that govern cryptocurrency transactions.
In Kenya, cryptocurrency taxation has evolved significantly in recent years reflecting the growing adoption of digital assets.
Cryptocurrency is not recognised as legal tender in Kenya and cannot be used to pay taxes directly.
The Central Bank of Kenya has issued several warnings about the risks associated with cryptocurrency investments, including volatility, fraud, and lack of consumer protection. However, it is not illegal to own, trade, or invest in cryptocurrencies.
This has allowed a thriving crypto market to develop, with about four million Kenyans or 8.5 percent of the population, owning cryptocurrencies, ranking Kenya among the top countries for crypto adoption.
Considering the growing demand, the Kenya Revenue Authority (KRA) has started focusing on cryptocurrencies as taxable assets. Before specific crypto tax laws were enacted, the KRA relied on Section 3 of the Income Tax Act, which mandates that Kenyans report all worldwide income with a tax rate ranging from 10 percent to 30 percent.
However, enforcement was challenging due to the lack of a transparent system to track crypto transactions.
A major shift occurred with the Finance Act of 2023 where legislation introduced a three percent Digital Asset Tax on the gross fair market value of cryptocurrency transactions.
In addition, legislative efforts like the Capital Markets (Amendment) Bill, introduced in 2022 and advanced in 2023, aim to classify cryptocurrencies as securities under the Capital Markets Authority (CMA).
If fully enacted, this would impose a capital gains tax (CGT) on the increased market value of crypto assets. Cryptocurrency held for less than a year would be subject to income tax (10-30 percent). Assets held longer would fall under a separate CGT framework.
The Virtual Asset and Virtual Asset Service Providers (VASP) Bill 2025 is a new legislative proposal by the government to create a regulatory framework for virtual assets, directly affecting the future of cryptocurrency. The Bill seeks to encourage innovation in Kenya’s digital economy while addressing risks related to virtual assets.
Kenya’s approach to cryptocurrency taxation reflects a broader global trend where governments seek to regulate and benefit from the digital economy.
While the evolving legal framework, through measures such as the Digital Asset Tax, the Capital Markets (Amendment) Bill, and the proposed VASP Bill, aims to bring clarity and accountability, it also presents challenges in enforcement and compliance. As cryptocurrency adoption grows, striking a balance between regulation, innovation, and investor protection will be crucial.
Kenya has positioned itself as a leader in Africa’s crypto space, and how it navigates this bold new tax frontier will shape the future of digital finance in the region.
