Understanding Kenya’s new Excise duty on Digital Assets

Introduction

Kenya’s 2025 Finance Act introduced a shift in how the Government taxes virtual asset transactions. After collecting about KSh 1.1 billion in revenue from a 3% Digital Asset Tax (“DAT”) over 21 months (September 2023–June 2025), the Government has repealed that turnover-based tax and replaced it with an excise duty on transaction fees. This change aims to align the taxation of cryptocurrencies and other digital assets with how banks and payment service providers are taxed, rather than taxing the full value of each transaction.

Below, we’ll unpack what excise duty actually is, how it functions in the financial sector, and what this updated approach means for Kenyans navigating the crypto space.

What was the old Digital Asset Tax?

Introduced in September 2023, the DAT was a 3% tax on the transaction value of a digital asset transfer or exchange. Designed as a withholding tax, it required any person or exchange facilitating the trade to deduct 3% of the gross amount and remit it to Kenya Revenue Authority (“KRA”). This meant that if you sold cryptocurrency worth KSh100,000, the platform would withhold KSh 3,000 as DAT regardless of whether the seller made a profit or loss on that trade.

The New 10% Excise Duty on Crypto Transactions

Effective July 1, 2025, Kenya has abolished the 3% DAT on the gross value of cryptocurrency and other digital asset transactions and replaced it with a 10 % excise duty on the service fees charged by platforms facilitating those transactions.

What Is Excise Duty?

Excise duty is an indirect tax applied on select goods and services. In Kenya, it’s defined under the Excise Duty Act, 2015 (“the Act”), as a levy on certain locally manufactured or imported products, as well as specific services listed in the First Schedule of the Act. Traditionally, excise duty targeted goods deemed luxuries or harmful products (for example, alcohol, tobacco, fuel) as well as some essential services such as telecommunications and financial services. Unlike income tax or VAT, excise duty is usually embedded in the price of a product or service. The manufacturer or service provider is responsible for collecting and remitting the tax, often passing the cost on to consumers through higher prices.

Excise duty is charged in two main ways:

• Ad valorem rate: This is a percentage of the product’s or service’s value. For example, mobile airtime and bank fees are taxed at a percentage of their transaction value.
• Specific rate: This is a fixed amount charged per unit of measurement. For instance, excise duty on wine is applied as a set amount per centiliter of alcohol, regardless of the price.

In practical terms, if a good or service is “excisable,” part of what you pay goes directly to the government as tax. Since it’s an indirect tax, consumers don’t file excise returns. Instead, businesses collect and remit the excise duty on a monthly basis, with returns due by the 20th of the following month.

How Does Excise Duty Apply to Banks and Mobile Money Providers?

Many Kenyans may not realize they already pay excise duty in everyday financial transactions. Bank charges, money transfer fees, and mobile money fees are subject to excise duty in Kenya. This means when you pay your bank, mobile wallet, or other payment service a fee for a transaction, a tax is applied only on that fee (not on the amount you’re sending). The service provider then remits the tax to the KRA.

For instance, if a mobile money operator charges KSh 100 as a withdrawal fee, an excise tax (currently 15%) is imposed on that KSh 100 fee. Effectively, KSh 15 of it is tax, which the service provider will remit to the KRA, leaving KSh 85 as the provider’s net charge (providers often build this into the fee you pay).The same applies to bank transaction fees, ATM fees, and other financial service charges. This system has been in place for years as part of Kenya’s effort to tax the financial services and digital payments sector without directly taxing the principal amounts being moved.

As of 2024, excise duty on fees for money transfer services by banks, money transfer agencies, and other financial providers is 15%. This rate was adjusted by the Finance Act 2023, previously banks faced 20% excise duty on fees, but it was reduced to 15%, while mobile money providers saw their excise rate on transfer fees rise from 12% to 15%, bringing all these services to a uniform rate.

By taxing the service fee at a moderate rate, the government raises revenue from the high volume of transactions in the digital economy, but customers are only taxed on the cost of the service, not on the amount of money they’re sending or receiving.

This approach is considered fairer and more efficient than taxing the transaction value. It mirrors how sales taxes or VAT works i.e. you tax the service provided, not the money itself changing hands. For example, depositing KSh 10,000 in the bank doesn’t trigger a tax, but if the bank charges you KSh 200 for that deposit, the excise duty applies to the KSh 200 fee. Until now, Kenya’s tax on digital asset trades didn’t follow this principle—it taxed the whole amount of crypto transferred, which many argued was akin to “being taxed for depositing money in a bank.”

Why switch to an excise tax on fees?

Lawmakers recognized that the 3% gross tax was problematic. As National Assembly Finance Committee Chairman Kuria Kimani explained, taxing the whole transaction was equivalent to taxing someone for merely moving “money—the equivalent of being taxed for depositing money in a bank”. It was seen as an unfair burden on investors and a disincentive to participate in the digital asset market. By contrast, taxing the service provider’s fee is more logical and is how traditional finance is taxed. The Finance Bill 2025 initially proposed just halving the DAT to 1.5%, but an amendment in Parliament scrapped it entirely and substituted the excise duty on fees. This shift aligns with a general principle that only the value added (the service) gets taxed, not the underlying asset being exchanged.

Under the new regime, if an exchange charges, say, a 1% fee on a crypto trade, the 10% excise will apply to that 1% fee. For a KSh 100,000 trade, the platform charges a fee of KSh 1,000, resulting in an excise duty of KSh 100, which the platform will remit to KRA. For the trader, the tax cost is relatively small – only 0.1% of the transaction value in this example – a much lower impact than the old 3% on the gross amount. Crypto exchanges, brokers, and other Virtual Asset Service Providers (VASPs) will be responsible for collecting and remitting this 10% excise on their fees. According to tax analysts, this change “simplifies compliance and may benefit crypto startups with lower margins”, since a fee-based levy is less burdensome than a turnover tax on the entire transaction.

Open questions and implementation challenges:
While the new excise duty is clearer in principle, there are practical questions about how it will work in the crypto space:

Who is liable?
The law specifies that the tax applies to the “owner of a platform” or “person who facilitates the exchange or transfer” of a digital asset, who must deduct the tax and remit it. This presumably targets exchanges (whether local or foreign) and possibly P2P marketplaces. How KRA will enforce this on foreign-based platforms that Kenyan residents use remains to be clarified. The upcoming Virtual Assets Service Providers Bill, 2025, is expected to introduce a licensing regime for crypto providers in Kenya, which could require those entities to register and comply with local tax laws. If major exchanges set up locally or partner with local firms, they would fall under KRA’s oversight for excise duty

Enforcement on overseas or decentralized services:
Finance Act, 2025 amended Section 5(d) of the Excise Duty Act to expressly bring within scope excisable services offered in Kenya by a non-resident over the internet, an electronic network, or through a digital marketplace. In practice, this means that non-resident crypto platforms that provide exchange, transfer, brokerage, wallet or similar facilitation services to Kenyan users are liable to Kenyan excise duty on the fees they charge, even if they have no physical presence in Kenya.

Accordingly, where a non-resident exchange charges a Kenyan user a trading, withdrawal, deposit, spread, or convenience fee, that fee falls within the excise net and should be accounted for and remitted to KRA . Enforcement may leverage existing rails and identifiers used in Kenya’s digital-tax regimes (e.g., local billing addresses, KES settlement, Kenyan phone numbers, bank/mobile-money interfaces), together with any licensing or onboarding obligations that may arise under the forthcoming VASP framework.

Peer-to-peer and DeFi edge cases: if a user trades purely P2P (wallet-to-wallet) without any platform or intermediary charging a fee, there is no explicit excise based on that leg of the transaction. However, any facilitation fee, spread/markup, or protocol/front-end charge taken by an operator that “owns” or “facilitates” a platform used by Kenyan users would be excisable. Where a service is truly decentralized with no identifiable person liable under the Act, practical enforcement remains challenging; by contrast, front-end operators, aggregators, custodians, and on/off-ramps that interact with Kenyan users and charge fees will typically be in scope.

Impact on revenue:
The switch to a 10% excise on fees will likely yield less revenue per transaction than a 3% tax on gross value. For KRA to collect KSh 1.1 billion again, there would need to be a very large volume of fee-based transactions. However, the government is betting on higher compliance and a growing market to make up the difference. By not over-taxing trades, the ecosystem can grow more transparently, and more players may be willing to operate within the law. As noted by industry stakeholders, this more balanced approach might keep Kenya attractive as a fintech and crypto hub rather than driving activity into the shadows.

Comparability to other financial services:
It’s worth noting the excise duty rate on crypto transaction fees (10%) is set lower than the 15% on traditional banking/mobile money fees. Lawmakers possibly chose 10% to encourage the nascent sector while still capturing some revenue. Over time, this rate could be revisited, but for now crypto services enjoy a somewhat lower excise rate than other financial services. Meanwhile, fees charged on exchange of other digital assets like NFTs would also fall under this excise if those platforms charge service fees.Overall, the Kenyan crypto industry has welcomed the move to excise duty. It is seen as a sign that the government listened to feedback that a blanket 3% turnover tax was poorly designed. With an estimated 10 million Kenyans holding some form of digital asset by end of 2024 (as per official data cited in news reports) and rapid growth in cryptocurrency adoption, striking the right balance in taxation is crucial. The new excise duty should integrate these digital asset transactions into the tax system more seamlessly, much like bank or mobile money fees, without impeding innovation.