Author: Chebet Kipingor, Business Operations Manager at Busha

As Kenya advances the revised 1.5% tax on cryptocurrency transactions, the country may not only lose tax revenue but also forfeit its regional fintech leadership, driving startups to expand cross-border and causing fragmentation before the unification of Africa's digital economy. Parliament is discussing the implementation of a Digital Asset Tax (DAT) on every cryptocurrency transaction. While the intention to broaden the tax base is reasonable, the current form of this policy may have unintended consequences for Kenya and the financial inclusion efforts across Africa.

Over 450 million people in Africa lack bank accounts, and digital assets present a genuine opportunity to bridge traditional infrastructure and extend financial services to underserved populations. This tax could increase transaction costs and push users—especially young, tech-savvy Africans—away from regulated platforms and into informal channels.

For many young Kenyans earning Bitcoin (BTC) or Tether's USDt (USDT) through freelancing, gaming, or programming, this tax means losing part of their income before converting it into mobile money to pay for rent, tuition, or basic living expenses. Kenya's grassroots Bitcoin economy—including developers, content creators, stakers, validators, and NFT artists—operates increasingly under crypto standards, using digital assets as everyday payment tools rather than speculative investments.

Kenya's choices are crucial. As a leader in fintech and mobile money on the African continent, the country's regulatory decisions set benchmarks for other African nations and signal to global investors and partners. Implementing a one-size-fits-all transaction tax may raise questions about whether policymakers view digital assets as speculative threats rather than as infrastructure for innovation and inclusion.

This is not a theoretical concern. Recent trends have shown signs of change. Local startups have already registered companies in countries like Rwanda and South Africa, where the policy frameworks are considered more supportive. Meanwhile, international exchanges are reconsidering their expansion plans due to regulatory uncertainty and rising compliance costs.

Globally, excessive taxation has led to significant consequences. For example, Indonesia implemented a 0.1% tax on crypto transactions in 2022. By 2023, tax revenue had dropped by over 60% as users turned to offshore or peer-to-peer platforms. The proposed tax rate in Kenya is 15 times higher, and the risk of capital outflow could be even more pronounced.

Within Africa, South Africa has embraced regulatory sandboxes and approved over 100 crypto licenses. What has been the result? A growing digital asset industry under clear regulation.

At the same time, Kenya is also considering the 2025 Virtual Asset Service Provider (VASP) Bill, which aligns with global efforts to strengthen compliance and reduce illicit financial flows. However, certain provisions in the current draft may undermine citizen privacy through inadequately safeguarded measures, posing risks of excessive intervention.

Clause 44(1) requires VASPs to provide real-time read-only access to customer and internal transaction records. Clause 33(2)(a) mandates comprehensive scrutiny of significant shareholders, beneficial owners, and senior officials. These provisions grant regulators the power to identify crypto users by centralizing control over transaction data to enforce anti-money laundering (AML), counter-terrorism financing (CFT), and counter-proliferation financing (CPF) obligations, but lack sufficient oversight mechanisms.

This contradicts the 2019 Kenya Data Protection Act, which requires that personal data processing have a legal basis and provide adequate privacy protection. Unlike jurisdictions such as the EU (under the Markets in Crypto-Assets Regulation and the General Data Protection Regulation), the US (where the framework requires the IRS to issue "record system notices" detailing the data it collects and how it is used), or the UK (which will require comprehensive crypto reporting starting in 2026)—which balance crypto regulation with data protection impact assessments and privacy compliance obligations—Kenya's draft framework lacks similar privacy protection mechanisms.

Banks have begun to resist the Kenya Revenue Authority's demands for customer data linkage, fearing data breaches, and parliamentary committees have questioned the Director General regarding data privacy provisions in the 2025 Finance Bill.

This creates a paradox: Kenya's push for compliance may inadvertently harm individual rights and hinder legitimate participants from entering the formal financial system. While transparency is crucial, effective regulation must be accompanied by modern privacy protection tools—such as zero-knowledge proofs or cryptographic audits—to protect users while supporting regulators.

The future of Africa lies in economic integration. The African Continental Free Trade Area (AfCFTA) envisions a unified market across 54 countries—digital assets have a unique ability to support this vision. However, inconsistent or punitive crypto regulation threatens this progress.

The EU's Markets in Crypto-Assets (MiCA) framework demonstrates that harmonious and innovation-friendly regulation is feasible. If African nations coordinate, Africa has a similar opportunity to become a leader.

Kenya's regulatory ambitions are commendable, but ambition must be matched with precision and foresight. Recent industry recommendations submitted to the National Assembly's Finance and National Planning Committee propose a pragmatic four-point pathway:

Kenya has long been a pioneer in fintech. The right regulatory framework can guide Africa's next digital chapter—a chapter defined by inclusivity, investment, and innovation.

This moment is about setting the tone for a continent where digital assets can drive cross-border trade, create youth employment, and build a financial system that serves everyone.

The question is not whether cryptocurrencies should be taxed or regulated, but whether Kenya will lead the way with vision—or lose ground to more agile peers.

Author: Chebet Kipingor, Business Operations Manager at Busha

This article is for general informational purposes only and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Original article: “Kenya's Crypto Tax Could Hinder Africa's Digital Growth Opportunities”

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