IEA Kenya, or the Institute of Economic Affairs – Kenya, is an independent public policy think tank based in Nairobi with the mission to promote informed public dialogue on key economic and governance issues in Kenya and the region.
The think tank recently released a comprehensive commentary on the Kenya Finance Bill 2025 identifying significant areas in how Kenya aims to manage its digital economy and navigate international tax compliance. While not directly targeting cryptocurrencies, several proposed amendments carry implications for digital assets, decentralized platforms, and cross-border tech services.
Digital Economy Taxation: Broadening the Net
One of the clearest indicators of Kenya’s intent to tighten control over the digital economy is the removal of the KES 5 million (~$38,000) threshold for non-resident digital service providers under the Significant Economic Presence Tax (SEPT).
IEA Critique: The IEA argues that this removal would unfairly burden small-scale non-resident digital actors, raising compliance costs and potentially driving them out of the Kenyan market.
Implication for Crypto: This could affect decentralized platforms or smaller international exchanges that might offer services like wallet hosting, NFT marketplaces, or P2P trading platforms to Kenyan users. These platforms would now fall within Kenya’s tax net, regardless of size, potentially pushing them to geo-block Kenyan IPs.
Advance Pricing Agreements (APAs) and Transfer Pricing
The bill introduces a section enabling Advance Pricing Agreements (APAs) between the tax authority and companies with cross-border transactions.
IEA’s Position: APAs are complex and expensive, favoring large multinationals over SMEs.
Crypto Relevance: This could complicate life for blockchain companies that conduct cross-border smart contract-based services, including DAO governance, DeFi protocols, or crypto lending platforms. These firms may be caught in the tax net without the legal and financial capacity to navigate APAs.
Definition of Royalties and Software Distribution
A controversial amendment expands the definition of royalties to include software distribution arrangements involving regular payments, which could result in withholding taxes.
IEA Recommendation: Reject the proposal, citing legal precedents that differentiate software licensing from royalty payments unless intellectual property is transferred.
Impact on Crypto: Blockchain-based software often operates under open-source or distributed licensing models. Imposing royalty interpretations on such arrangements introduces legal ambiguity, especially for decentralized applications (dApps), crypto wallets, and exchange APIs that charge subscription or usage fees.
Digital Lenders and Marketplaces
The bill revises definitions to cover digital lenders and marketplaces, bringing them under the excise duty regime and enabling clearer tax enforcement.
IEA Position: Retain marketplace taxation for fairness but oppose the removal of licensing requirements for digital lenders due to consumer protection risks.
Crypto Angle: These changes could set a precedent for taxing crypto marketplaces and decentralized finance (DeFi) protocols under similar definitions. Without clear legal categorization for crypto-lending or P2P token exchanges, tax liabilities may become arbitrary.
Repeal of Digital Service Tax Agent Appointment
The Finance Bill repeals Section 42B, removing the need to appoint a Digital Service Tax (DST) agent, aligning with the shift to the SEPT model.
IEA Response: This change is aligned with Kenya’s transition to a significant economic presence tax model for digital services.
Crypto Connection: Previously, crypto exchanges may have been designated DST agents if they had notable local engagement. With SEPT, even decentralized or non-custodial platforms could theoretically be subject to tax, based solely on user base or market influence in Kenya.
Cryptocurrency-Specific Omissions: An Opportunity or Oversight?
Although the bill does not explicitly reference cryptocurrencies, tokens, or blockchain platforms, the increased taxation of digital services and marketplaces may foreshadow future regulatory inclusions.
Observations: Kenya’s regulatory trajectory mirrors global trends—shifting from ambiguous digital tax categories to more precise regimes capturing economic value from intangible and decentralized sources.
Missed Opportunity: The bill could have introduced clarity on how crypto is taxed (e.g., capital gains, VAT, income), which remains a gray area for investors and builders alike.
Conclusion: A Widening Net with Vague Crypto Boundaries
The Finance Bill 2025 represents Kenya’s strategic pivot to formalize and monetize its rapidly digitizing economy. While commendable in intent, the implementation risks overburdening smaller players, stifling innovation, and creating legal uncertainties – especially for crypto-related businesses and users.
Key Recommendations:
Introduce explicit language for cryptocurrency taxation, separate from general digital services.
Develop simplified compliance pathways for small digital enterprises and startups, including those in the blockchain space.
Align with international frameworks to avoid double taxation in cross-border crypto transactions.
Kenya stands at a pivotal moment in aligning its tax framework with the realities of a decentralized, digitized global economy. The Finance Bill 2025 opens the door – what remains is to walk through it wisely.
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A Review of the Finance Bill 2025 by IEA Kenya Think Tank and its Implications for Kenya’s Digital and Crypto Economy
IEA Kenya, or the Institute of Economic Affairs – Kenya, is an independent public policy think tank based in Nairobi with the mission to promote informed public dialogue on key economic and governance issues in Kenya and the region.
The think tank recently released a comprehensive commentary on the Kenya Finance Bill 2025 identifying significant areas in how Kenya aims to manage its digital economy and navigate international tax compliance. While not directly targeting cryptocurrencies, several proposed amendments carry implications for digital assets, decentralized platforms, and cross-border tech services.
Digital Economy Taxation: Broadening the Net
Advance Pricing Agreements (APAs) and Transfer Pricing
The bill introduces a section enabling Advance Pricing Agreements (APAs) between the tax authority and companies with cross-border transactions.
Definition of Royalties and Software Distribution
A controversial amendment expands the definition of royalties to include software distribution arrangements involving regular payments, which could result in withholding taxes.
Digital Lenders and Marketplaces
The bill revises definitions to cover digital lenders and marketplaces, bringing them under the excise duty regime and enabling clearer tax enforcement.
Repeal of Digital Service Tax Agent Appointment
The Finance Bill repeals Section 42B, removing the need to appoint a Digital Service Tax (DST) agent, aligning with the shift to the SEPT model.
Cryptocurrency-Specific Omissions: An Opportunity or Oversight?
Although the bill does not explicitly reference cryptocurrencies, tokens, or blockchain platforms, the increased taxation of digital services and marketplaces may foreshadow future regulatory inclusions.
Conclusion: A Widening Net with Vague Crypto Boundaries
The Finance Bill 2025 represents Kenya’s strategic pivot to formalize and monetize its rapidly digitizing economy. While commendable in intent, the implementation risks overburdening smaller players, stifling innovation, and creating legal uncertainties – especially for crypto-related businesses and users.
Key Recommendations:
Kenya stands at a pivotal moment in aligning its tax framework with the realities of a decentralized, digitized global economy. The Finance Bill 2025 opens the door – what remains is to walk through it wisely.
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