As Kenya’s virtual asset market continues to grow, regulators and policymakers face a critical question: how should virtual assets be taxed fairly, without stifling innovation? Yellow Card, one of Africa’s leading digital asset platforms, is advocating for a more nuanced and globally aligned tax approach one that separates speculative digital assets from stable ones and considers holding periods before imposing taxes.
Below, we explore Yellow Card’s position and why their proposal could help Kenya build a more sustainable digital asset economy.
Differentiate Between Speculative and Stable Assets
According to Edline Murungi, Senior Legal Counsel for East Africa at Yellow Card, the first step is clear:
“We would separate the speculative assets from the stable assets so the assets whose value does not change.”
Speculative assets, like Bitcoin and Ethereum, fluctuate in value and are typically held for investment. In contrast, stable assets like USDT are pegged to the dollar and function more like foreign exchange [Forex]. This makes them unsuitable for capital gains tax.
Use Capital Gains Tax for Speculative Assets
Yellow Card recommends that Kenya adopt a capital gains tax model for speculative assets. This is in line with global standards followed by countries like Nigeria, South Africa, the UK, and Japan.
“The tax is only imposed when there has been a gain… If you’re moving from one wallet to another and there hasn’t been a gain, then there is no taxable point.” Explains Murungi.
This means that traders or investors would only be taxed when they sell assets at a profit not for simply moving or holding them. Taxing unrealized gains or losses, Yellow Card argues, is both unfair and counterproductive.
Consider Holding Periods to Distinguish Traders from Long-Term Investors
Another critical point in Yellow Card’s proposal is the need to differentiate between day traders and long-term holders.
“Most countries implementing this model consider a holding period of at least six months to a year… unless there has been a huge gain,” says Murungi.
By considering how long someone has held an asset, Kenya can apply fairer tax rules and avoid burdening long-term investors with rules meant for active traders.
Apply Income Tax to Stablecoins Like USDT
For stable digital assets, Yellow Card recommends that they be treated like foreign currency:
“There is no capital gains tax because those assets never change value. They are pegged one to one with the dollar,” says Murungi.
Instead, businesses that earn income by facilitating trades in stable assets [e.g., charging a 0.5% fee margin on USDT] would pay corporate income tax on their profits just like any other business.
Why Kenya’s Current Tax Law Needs Reform
Currently, Kenya applies a digital asset tax of 1.5% on every transaction, based on gross market value—regardless of whether the user made a profit.
Murungi notes the problem with this approach:
“There’s a 1.5% tax on every transfer at gross market value… They are not considering the gain. So we are asking the government, please consider the gain. Please consider how long people have held the asset.”
Yellow Card believes this tax structure ignores basic principles of taxation and could discourage responsible digital asset adoption in Kenya.
Conclusion: A Call for Sensible, Growth-Oriented Regulation
Yellow Card’s approach offers a simple but powerful solution: tax gains, not movements, and differentiate between asset types. By aligning Kenya’s policies with international best practices, the country can foster a fairer environment for innovation, investment, and financial inclusion.
As the conversation around crypto regulation continues, Yellow Card urges the Kenyan government to adopt a tax model that reflects how digital assets actually work in practice not just on paper.
