Association in court to challenge digital tax

BAK argues that the tax imposes onerous compliance requirements.

In Summary

•In its submission, the BAK highlighted unclear classification of digital assets, ambiguity surrounding transfers of digital assets and  impractical 5 day remittance timeframe.

•The matter will be mentioned before court on 28th September 2023.

The Blockchain Association of Kenya (BAK) is in court to challenge the legality and constitutionality of the Digital Asset Tax (DAT) introduced by Finance Act 2023.

The DAT, introduced and passed as part of the Finance Bill 2023, imposes a three percent tax on digital asset trades with effect from, 1st September 2023.

The association argues that the tax also imposes heavy compliance requirements.

The filing comes after the BAK, on the 25th of May 2023, submitted its views on the proposed tax under the Finance Bill 2023 to the National Assembly’s Departmental Committee on Finance and National Planning.

In its submission before the High Court, the BAK highlights unclear classification of digital assets, ambiguity surrounding transfers of digital assets, impractical five-day remittance timeframe, and a failure to consider loss-making transactions among others

 “Despite being an income tax, the impugned digital asset tax is imposed on the gross value of the digital asset. This places a tax liability even on transactions that result in net loss, rather than focusing solely on the taxation of gains and profits,” said The Director of Legal & Policy affairs at BAK Allan Kakai.

BAK says its is deeply committed to advocating and lobbying for a conducive environment for innovation while ensuring legal clarity noting that the petition aims to address concerns about the DAT’s impact on both our industry and the broader economy.

The matter will be mentioned on September 28, 2023.

In the spirit of lobbying, BAK is hosting digital asset stakeholders for the annual Digital Assets Policy Safari (DAPS) forum on September 19 2023 to shape Kenya’s national digital asset policy.

An amendment in the Finance Act 2022 clarified that non-resident taxpayers with permanent establishment are not subject to DAT provided that the DST is declared in Kenya for income tax purposes.

When DAT started, it had residents and non-residents for a period of six months. After that residents were excluded.

If a company decides to come to Kenya, set up an office and offer similar services, DAT will fall under normal income tax. The firm will pay corporate tax.



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