Digital Taxation in Kenya - Overview and History

Understanding Digital Taxation in Kenya – Overview and History

June 27, 2025

As Kenya seeks to modernize its tax framework and keep pace with the evolving global economy, digital taxation in Kenya has emerged as a critical policy area.

The government has implemented several initiatives to ensure that businesses operating in the digital economy contribute fairly to the national revenue, especially as more commerce and financial activity shift online.

Whether it involves cryptocurrency trading, digital content platforms, or online marketplaces, the Kenya Revenue Authority (KRA) has introduced various measures to regulate and tax digital transactions and services.

This article explores the evolution of digital taxation in Kenya, focusing on the introduction and implementation of the Digital Assets Tax (DAT), the Digital Services Tax (DST), and the newer Significant Economic Presence Tax (SEPT).

It also highlights recent developments, practical implications, and frequently asked questions.

Introduction – History of Digital Taxation in Kenya

In response to the rapid expansion of the digital economy, Kenya has taken progressive steps to introduce digital taxation policies that align with international best practices and promote tax equity.

Key Milestones:

2021 – Kenya introduced the Digital Services Tax (DST) through the Finance Act 2020, imposing a 1.5% tax on income earned via digital marketplaces.

2023 – DST was repealed and replaced by the Significant Economic Presence Tax (SEPT), set at 3% of gross turnover.

2023 – The same year saw the introduction of the Digital Assets Tax (DAT) at 3% of the gross transaction value of cryptocurrencies and virtual assets.

2025 – Parliament replaced DAT with a 10% excise duty on transaction fees, citing stakeholder concerns and fairness issues.

What is the Digital Assets Tax (DAT)?

The Digital Assets Tax (DAT) represents a key pillar in digital taxation in Kenya.

Digital Assets Tax (DAT) was introduced to regulate and tax income from the exchange, sale, or transfer of digital assets such as:

Cryptocurrencies
NFTs (Non-Fungible Tokens)
Tokenized assets
Any electronically tradable representation of value

Key Provisions:

Scope: Applies to both resident and non-resident persons dealing in digital assets in Kenya.

Rate: 3% on the gross transaction value (not net profit).

Deadline: Payment due within 5 working days of the transaction.

Final Tax: No additional tax due on the same transaction.

Withholding: Platforms and exchanges were obligated to withhold and remit this tax.

2025 Change:

The Finance Bill 2025 proposed a reduction of DAT to 1.5%
However, after public and committee review, Parliament opted to abolish Digital Asset Tax entirely and introduce a 10% excise duty on transaction fees only, making the tax system more proportional and less punitive.

Impact of DAT on Users

High costs discouraged small-scale and peer-to-peer (P2P) traders.
Turnover-based taxation led to financial strain regardless of profit.
Viewed as one of the most aggressive crypto tax regimes globally.

Going Forward:

Only transaction or platform fees will be subject to tax (10% excise duty), not the full transaction amount – resulting in a fairer approach to crypto taxation in Kenya.

Digital Services Tax (DST)

The Digital Services Tax was introduced in 2021 to capture income earned by non-resident digital service providers targeting Kenyan users.

Digital Services Tax marked the beginning of structured digital taxation in Kenya, particularly for non-resident digital platforms.

Key Provisions:

Rate: 1.5% of gross revenue

Scope: Applied to platforms offering services via a digital marketplace, including:

Streaming services (e.g., Netflix, Amazon)
Online marketplaces (e.g., Jumia)
Advertising services (e.g., Google Ads)
Cloud services and digital downloads

Compliance:

Non-resident companies had to register with KRA or appoint a local tax representative.
Tax was due monthly by the 20th of the following month.

Repeal in 2023:

Digital Service Tax was repealed and replaced by Significant Economic Presence Tax (SEPT), due to:

Global backlash over perceived discrimination
Risk of retaliatory taxation by foreign governments
Misalignment with OECD tax reform frameworks

The Significant Economic Presence Tax (SEPT)

The Significant Economic Presence Tax (SEPT) is a tax that targets non-resident businesses that provide services via a digital marketplace and applies to income generated by these businesses in Kenya.

Its main aim is to ensure that digital businesses contribute fairly to the country’s tax revenue, even if they do not have a physical presence within Kenya.

SEPT reflects a new era of digital taxation in Kenya, focusing on economic presence rather than just physical location.

Provisions of the SEPT

Rate: SEPT is levied at 3% of the total Gross Earnings / Turnover.
Filing & Payment: It is payable monthly on or before the 20th day of the following month.

Exemption Threshold:

Key Point: SEPT is not applicable to digital businesses with an annual turnover of less than Ksh 5 million.
This exemption is intended to shield small-scale digital enterprises from early taxation burdens, promoting fairness and enabling growth

Main Difference between the SEPT and the Digital Service Tax

Digital Service Tax (DST)	Significant Economic Presence Tax (SEPT)
Charged at 1.5%	Charged at 3%
No revenue threshold – Applied across the board	Exempts businesses with turnover < Ksh 5 million
Applicable to income earned through digital marketplaces by non-residents	Applicable to non-residents earning from digital services provided in Kenya
Repealed in 2023 due to global tax alignment efforts	Introduced as a replacement to align with OECD digital tax frameworks

Main Differences between the Digital Assets Tax and the Digital Service Tax.

Feature	Digital Assets Tax (DAT)	Digital Service Tax (DST)
Introduced	Finance Act, 2023	Finance Act,2020
Effective from	1st September 2023	1st January 2021
Status	This was abolished via the Finance Bill 2025	This was repealed in 2023 via the Finance Act
Applicable to	Anyone trading or transferring digital assets (e.g. crypto, NFTs)	Non-resident providers of digital services e.g. Netflix and Google
Tax Base	Charged on 3% on gross transaction value	Charged on 1.5% on gross service revenue
Collection Method	DAT is a final tax and can be self-declared or withheld by platforms	Final tax that can be self-declared by non-residents or their agents.
Payment Deadline	Within 5 working days of the transaction	By the 20th day of the following month
Exemptions	None (applied broadly to all digital asset users)	Resident companies with Permanent Establishments in Kenya
Key Issue / Criticism	DAT taxed Turnover only and not profits	This tax penalized foreign companies only risking double taxation
Current Replacement	DAT was swiped for a more favorable 10% Excise Duty on the transaction fees as per Finance Bill 2025 amendment by the parliament	The DST was replaced by the Significant Economic Presence (SEP) model in 2023

Other Forms of Digital Taxation in Kenya

In addition to Digital Assets Tax (DAT), Digital Services Tax (DST), and the Significant Economic Presence Tax (SEPT), Kenya has introduced several other tax measures that impact the digital economy.

These are designed to ensure that digital transactions – especially those involving non-resident businesses – contribute fairly to the national tax base.

Here are the other key forms of digital taxation in Kenya:

i) Value Added Tax (VAT) on E-Commerce

Effective from 2021, non-resident suppliers of digital services (such as streaming platforms, cloud-based software, and e-books) are required to register and charge VAT at 16% on supplies made to Kenyan consumers.
This aligns with global efforts to ensure VAT is collected where consumption occurs.

ii) Withholding Tax on Digital Advertising and Consulting Services

Payments to non-resident digital service providers – including online advertising platforms like Google Ads and consulting firms – may attract Withholding Tax at a rate of 20%, unless reduced under an applicable Double Taxation Agreement (DTA).
This ensures that offshore service providers also contribute to local tax revenue.

iii) Excise Duty on Mobile Money Transfers

Although not exclusive to digital services, Excise Duty at 15% applies to transaction fees for mobile money transfers.
This affects everyday digital transactions through platforms like M-Pesa, Airtel Money, and other fintech services operating in Kenya.

These additional tax provisions demonstrate Kenya’s evolving and multi-layered strategy toward regulating and taxing the digital economy – encompassing e-commerce, fintech, streaming services, and cross-border digital service provision.

Frequently Asked Questions

1. What was DAT and why was it removed?

DAT taxed 3% of crypto transactions, regardless of whether profit was made.
It was seen as overly harsh and replaced by a 10% excise duty on transaction fees.

2. What is SEPT and how is it different from DST?

SEPT is broader and more aligned with global tax norms.
It applies to non-residents with a significant Kenyan user base and doesn’t apply to small-scale businesses.

3. Who does digital taxation in Kenya apply to?

It applies to both individuals and non-resident firms earning from Kenya’s digital economy – be it through crypto, streaming, marketplaces, or cloud services.

4. What are the limitations of Kenya’s digital tax approach?

Unclear implementation rules (especially for the Significant Economic Presence Tax)
Limited guidance on crypto enforcement
High compliance burden for foreign businesses

5. What’s the future of digital taxation in Kenya?

Kenya is transitioning toward a more balanced, investor-friendly digital tax regime, focused on fairness, enforceability, and alignment with international standards.

Conclusion

Digital taxation in Kenya continues to evolve as the country balances innovation, revenue generation, and fairness in the digital economy.

With the repeal of DAT and DST, and the introduction of SEPT and excise-based crypto tax, the country is rethinking how best to manage digital revenue streams.

As digital trade grows, Kenya’s regulatory environment must remain adaptable, informed, and inclusive of stakeholder input to build a sustainable digital economy.

Quartet Consulting – Your Tax & Policy Partner

Need help navigating digital taxation in Kenya or regulatory compliance in Kenya?

Quartet Consulting offers expert advisory and compliance support to crypto platforms, digital service providers, and cross-border businesses.

Reach out today to schedule a strategic consultation.

Discalimer

This content is for informational purposes only and does not constitute legal, financial, or tax advice. For guidance tailored to your situation, please consult a qualified advisor.

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