opportunity

Opinion by: Chebet Kipingor, business operations manager at Busha

As Kenya pushes forward with a revised 1.5% crypto transaction tax, it risks losing more than revenue — it could forfeit its regional fintech leadership, drive startups across borders, and fracture Africa’s digital economy before it can unify. Parliament is debating implementing the Digital Asset Tax (DAT) on every cryptocurrency transaction. While the intention to broaden the tax base is valid, the policy’s current form could deliver unintended consequences for Kenya and financial inclusion efforts across the continent.

With over 450 million unbanked individuals in Africa, digital assets offer a real chance to leapfrog traditional infrastructure and extend financial services to underserved populations. This tax risks raising transaction costs and pushing users — especially young, tech-savvy Africans — off regulated platforms and into informal channels.

For many young Kenyans earning in Bitcoin (BTC) or Tether’s USDt (USDT) from freelance work, gaming or coding, this tax means losing income before converting it to mobile money to pay rent, school fees or basic living expenses. Kenya’s grassroots Bitcoin economy — comprising developers, content creators, stakers, validators and NFT artists — increasingly operates on a crypto standard, using digital assets as daily payment tools rather than speculative investments.

Kenya’s choices matter. As a continental leader in fintech and mobile money, the country’s regulatory decisions serve as a benchmark for other African nations and as signals to global investors and partners. Implementing a blanket transaction tax could raise questions about whether policymakers view digital assets as speculative threats rather than infrastructure for innovation and inclusion.

The regional ripple effects

This is not a theoretical concern. Recent trends already indicate a shift. Already, local startups are incorporating in countries like Rwanda and South Africa, where policy frameworks are perceived as more supportive. Meanwhile, international exchanges are reconsidering expansion plans, citing regulatory uncertainty and rising compliance costs.

Lessons from global peers

Globally, over-taxation has had clear consequences. Indonesia, for instance, implemented a 0.1% crypto transaction tax in 2022. By 2023, revenue fell by over 60% as users migrated to offshore or peer-to-peer platforms. Kenya’s proposed rate is 15 times higher, raising the risk of similar — or more pronounced — capital flight.

VASP stakeholders present to the National Finance Planning Parliamentary Committee in Kenya.

Closer to home, South Africa has embraced regulatory sandboxes and approved over 100 crypto licenses. The result? A growing digital asset sector is operating under clear oversight.

Privacy, compliance and the emerging paradox

In parallel, Kenya is also considering the Virtual Asset Service Providers (VASP) Bill 2025, a move aligned with global efforts to strengthen compliance and reduce illicit financial flows. Elements of the current draft risk overreach through provisions that could compromise citizen privacy without adequate safeguards.

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Clause 44(1) mandates that VASPs provide real-time read-only access to client and internal transaction records. Clause 33(2)(a) requires comprehensive vetting of significant shareholders, beneficial owners and senior officers. These provisions empower regulators to identify crypto users and enforce Anti-Money Laundering (AML), countering the financing of terrorism (CFT) and counter proliferation financing (CPF) obligations through centralized control of transaction data without sufficient oversight mechanisms.

VASP stakeholders present to the National Finance Planning Parliamentary Committee in Kenya.

This creates tension with the Kenya Data Protection Act 2019, which requires a lawful basis for personal data processing and adequate privacy protections. Unlike jurisdictions such as the EU (under Markets in Crypto-Assets and the General Data Protection Regulation), the US (with frameworks that mandate the IRS to publish a “System of Records Notice” detailing the data it collects and how it’s used) or the UK (which will require comprehensive crypto reporting from 2026) — which balance crypto oversight with data protection impact assessments and privacy compliance obligations — Kenya’s draft framework lacks similar privacy-preserving mechanisms.

Banks have begun resisting Kenya Revenue Authority data linkage requirements over customer data leak concerns, while parliamentary committees have questioned the Commissioner General about data privacy clauses in the Finance Bill 2025.

This presents a paradox as Kenya’s push for compliance may inadvertently compromise individual rights and deter legitimate actors from entering the formal financial system. While transparency is essential, effective oversight must be accompanied by modern privacy-preserving tools — such as zero-knowledge proofs or cryptographic audits — that protect users while supporting regulators.

Africa’s digital opportunity toward an integrated economy

Africa’s future lies in economic integration. The African Continental Free Trade Area (AfCFTA) envisions a unified market across 54 nations — a vision that digital assets are uniquely equipped to support. Inconsistent or punitive crypto regulations, however, threaten that progress.

The EU’s MiCA framework proves that harmonized, innovation-friendly regulation can work. Africa has a similar opportunity to lead — if countries coordinate.

A blueprint for smart regulation

Kenya’s regulatory ambition should be applauded, but ambition must be matched by precision and foresight. Recent industry submissions to the National Assembly Committee on Finance and National Planning suggest a pragmatic four-point path:

• Tiered taxation: Rather than a flat 1.5%, tailor taxes by use case. Treat digital assets under existing property disposal rules to avoid double taxation and encourage everyday use.

• Innovation sandboxes: Support blockchain experimentation — from carbon credits to stablecoins — within regulatory testbeds to balance innovation and risk.

• Privacy-first compliance: Incorporate modern tools like public audits and cryptographic proofs to ensure oversight without compromising citizens’ rights.

• Phased rollout: Prioritize education and voluntary compliance, working with academia and industry leaders to build capacity before full enforcement.

Seizing a leadership moment

Kenya has long been a fintech trailblazer. The right regulatory architecture can guide Africa’s next digital chapter — one defined by inclusion, investment and innovation.

This moment is about setting the tone for a continent where digital assets can power cross-border trade, enable youth employment, and build financial systems that work for everyone.

The question isn’t whether crypto should be taxed or regulated. It’s whether Kenya will lead with foresight — or lose ground to more agile peers.

Opinion by: Chebet Kipingor, business operations manager at Busha

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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