With the rising popularity of crypto transactions and recent legislative developments in Kenya, a recognised leader in mobile money, the question of tax treatment of digital assets has become increasingly relevant. Should digital assets be subject to both Excise and Value Added Tax (vat)? The answer is far from clear.
Kenya has not had specific regulations for crypto assets for a while, with regulatory issues and related activities being addressed based on existing frameworks and in line with the mandates of the Capital Markets Authority (CMA) and the Central Bank of Kenya (CBK).
However, the CMA and the CBK’s rulemaking in crypto-assets or digital assets has thus far remained limited, and no formal instruments that specifically or expressly cover digital assets had been issued by either institution.
That said, the government recently introduced the Virtual Asset Service Providers (VASP) Act, 2025, establishing a regulatory framework for VASPs and addressing risks linked to the misuse of virtual asset services
According to Chainalysis, a US-based firm, Kenyans carried out transactions valued Sh426.4 billion ($3.3 billion) in stablecoins in the year up to June 2024, highlighting the increasing integration of virtual assets into economic activities.
Against this backdrop, understanding the tax and regulatory implications requires examining the key categories of virtual asset services operating in Kenya.
These include peer-to-peer exchanges, which enable fiat-to-crypto conversions; custodial services which help users safeguard private keys; and NFT marketplaces, which facilitate the creation and exchange of digital collectibles and art. These roles demand tailored regulation and taxation that reflect the distinct functions of digital assets.
Accordingly, Kenya’s legislative response signals a pivotal shift in the regulatory and fiscal landscape. Through the Finance Act 2025, the government repealed the 3 percent Digital Asset Tax (DAT) on gross transaction value and introduced a 10 percent Excise Duty (Excise) on fees charged by VASPs.
Under the Excise Duty Act (EDA), fees charged by VASPs on virtual asset transactions are subject to Excise at a rate of 10 percent of the excisable value.
This shift from the repealed DAT to Excise reflects a more targeted and administratively efficient approach, focusing on transaction fees rather than the gross value of digital asset transactions.
By taxing the fees instead of the entire transaction amount, the government preserves revenue while reducing economic distortions associated with taxing gross transaction values.
While the imposition of Excise on virtual asset transactions is explicit under the EDA, the same certainty does not apply to VAT. Under the Value Added Tax Act (VAT Act), VAT is chargeable on any taxable supply unless it is specifically listed as exempt under the First Schedule or zero-rated under the Second Schedule.
Virtual asset services are not included in these exemptions, raising a critical question: Are fees charged by Virtual Asset Service Providers (VASPs) subject to VAT?
This ambiguity is compounded by the similarity between VASP services and traditional financial services. The First Schedule to the Virtual Asset Act outlines the types of virtual asset services and their functions, including custodial wallet services, transfer and conversion services, trading, settlement platforms, payment gateways, and brokerage functions.
From the foregoing, the services offered by VASPs are akin to those provided by traditional financial institutions. Notably, Part II of the First Schedule to the VAT Act exempts certain financial services from VAT.
However, it does not specifically include services offered by VASPs, creating uncertainty around their VAT treatment despite their functional alignment with conventional financial services.
The current lack of clarity on how to tax virtual asset transactions is bound to give rise to tax disputes between VASPs and the tax authority.
Applying both Excise and VAT on these services creates an unfair tax environment, as cryptocurrencies are increasingly used as a medium of payment similar to other financial services exempt from VAT.
Best international practice offers useful guidance and provides clarity on where ambiguity exists. For instance, the European Union, Australia, the United Kingdom, and Singapore treat virtual assets activities, including bitcoin, akin to financial services and means of payment, thus exempting them from VAT.
This not only reduces compliance complexity but also lowers incidences of tax disputes and reduces transaction costs in the digital economy.
Building on these lessons, a clear and forward-looking policy framework is essential for Kenya. As such, policymakers should work closely with industry stakeholders to develop legislation that encourages innovation while safeguarding revenue.
Finally, the taxation regime for virtual assets must be clear and well-defined to reflect the country's approach to fostering innovation, position Kenya as a competitive digital hub, and enhance compliance with tax regulations.
The writers are consultants within PwC’s Tax Line of Service.
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