The African Tax Response to Fintech and Web3

Africa has emerged as one of the most dynamic global laboratories for financial innovation. Fintech solutions addressing payments, lending, remittances and financial inclusion have scaled rapidly, while Web3 applications built on blockchain, crypto-assets and decentralised finance (DeFi) are increasingly visible across the continent. These developments have challenged traditional tax frameworks that were largely designed for brick-and-mortar businesses, identifiable intermediaries and clearly defined jurisdictions.

African tax authorities are therefore under growing pressure to strike a balance between three competing objectives: safeguarding the tax base, encouraging innovation and investment, and ensuring administrative feasibility in often resource-constrained environments. In this article we will analyse how African jurisdictions are responding from a tax policy and administration perspective, with a particular focus on indirect taxes, income taxes and emerging digital tax instruments.

Fintech and Web3 in the African Context

Fintech adoption in Africa has been driven primarily by necessity rather than convenience. Mobile money platforms, digital wallets and app-based payment solutions have filled gaps left by traditional banking systems, particularly in East and West Africa. In parallel, Web3 adoption has been fuelled by high remittance costs, currency volatility and limited access to global financial markets.

From a tax perspective, these models share several common characteristics: cross-border service provision, heavy reliance on digital infrastructure, limited physical presence and, in the case of Web3, varying degrees of decentralisation. These features complicate the application of conventional source and nexus rules, as well as enforcement mechanisms.

Indirect Tax Responses

1. VAT on Digital and Electronic Services

One of the most visible tax responses has been the extension of VAT regimes to cover digital and electronic services supplied by non-residents. Several African countries have introduced specific digital services VAT rules, simplified registration regimes and online portals to capture revenue from foreign fintech platforms.

Under these frameworks, VAT liability is typically triggered by the location of the customer rather than the supplier. Fintech services such as payment facilitation, platform fees, digital wallets and subscription-based financial tools are increasingly classified as taxable electronic services. This approach reflects a broader shift towards destination-based taxation aligned with international VAT principles.

2. Excise Duty on Transaction Fees

The most common approach has been the imposition of excise duty on the fees charged by service providers (banks, money transfer agencies, and mobile money operators).

• Kenya: As of 2024/2025, Kenya applies a uniform 15% excise duty on fees charged for all money transfer services, including mobile money and bank transfers.

• Uganda & Tanzania: Both countries have historically used excise duties ranging from 10% to 15% on the commissions and fees earned by fintech providers.

3. Virtual Assets Excise Duty

A significant recent development is the extension of excise duty to Web3 and cryptocurrencies. This marks a transition from treating crypto as a capital gain or a digital asset to treating the facilitation of crypto trades as an excisable service.

Kenya’s 2025 Pivot: In a landmark move, Kenya repealed its 3% Digital Asset Tax (DAT) which was based on gross transaction value and replaced it with a 10% excise duty on transaction fees charged by Virtual Asset Service Providers (VASPs).

Rationale: This shift aligns Web3 taxation with traditional banking. Instead of taxing the underlying asset (which is difficult to value), the state taxes the service fee charged by the exchange or broker, making it easier to administer for platforms like Binance or local exchanges.

4. The Shift to "Value-Based" Levies (E-Levies)

Moving beyond taxing just the service provider's fee, some nations have introduced taxes on the face value of the transaction itself. Often referred to as "E-Levies," these are technically excise-style duties applied to the movement of money.

Ghana applies a 1.0% levy on qualifying electronic transfers above a daily threshold, while Zimbabwe’s Intermediated Money Transfer Tax (IMTT) imposes a 2.0% charge on most electronic transactions. Cameroon adopts a lower rate of 0.2%, applied to transfers and withdrawals conducted via mobile phones and other electronic means.

Direct Tax Measures

1. Significant Economic Presence and Digital Nexus Rules

In response to the limited effectiveness of permanent establishment rules in the digital economy, several African jurisdictions have introduced significant economic presence (SEP) concepts. These rules seek to establish taxing rights based on sustained interaction with a local market, even in the absence of physical presence.

For fintech platforms, SEP thresholds are often linked to user numbers, transaction volumes or locally sourced revenue. This approach enables tax authorities to assert corporate income tax rights over foreign digital businesses operating extensively within their jurisdictions.

2. Withholding Taxes on Digital Payments

Another common response has been the expansion of withholding tax regimes to cover payments for digital and technical services. Fintech-related fees, software access charges and platform commissions are increasingly subject to withholding tax when paid to non-residents.

While administratively efficient from a revenue collection standpoint, withholding taxes raise concerns around double taxation, treaty compatibility and cash flow constraints, particularly for early-stage fintech businesses operating on thin margins.

Crypto-Assets and Web3: Emerging Policy Approaches

1. Classification and Tax Characterisation

The taxation of crypto-assets remains one of the most unsettled areas of African tax policy. Jurisdictions vary widely in how they classify crypto-assets, ranging from property and financial instruments to commodities or intangible assets. This classification directly affects income tax, capital gains tax and VAT outcomes.

Some countries have opted to tax gains from crypto trading as ordinary income, while others apply capital gains tax principles. In most cases, however, detailed legislative provisions are still evolving, and taxpayers are required to rely on general tax principles.

2. Regulatory–Tax Coordination

Tax policy in the Web3 space is increasingly influenced by financial regulation. Licensing regimes for virtual asset service providers (VASPs), know-your-customer (KYC) obligations and transaction reporting requirements are gradually improving tax visibility. Where effective coordination exists between regulators and tax authorities, compliance and enforcement outcomes are significantly enhanced.

However, overly restrictive regulation risks driving activity underground or offshore, undermining both tax and supervisory objectives. African policymakers are therefore experimenting with phased and risk-based approaches.

3. Balancing Innovation and Revenue Protection

A recurring policy tension is the risk of over-taxation stifling innovation. Fintech and Web3 sectors are highly sensitive to regulatory and tax costs, particularly in early growth phases. Excessive compliance burdens or uncertain tax positions can deter investment and slow financial inclusion gains.

Forward-looking jurisdictions are therefore complementing enforcement measures with clear guidance, stakeholder engagement and, in some cases, targeted incentives. Regulatory sandboxes, tax rulings and transitional reliefs are increasingly used to provide certainty while allowing authorities to observe emerging models.

Practical Challenges in Application

Despite policy clarity, implementation challenges remain significant. Determining whether a fintech service qualifies as an electronic service or a financial service (often VAT-exempt under domestic law) has proven contentious. Live human involvement, hybrid service models and bundled offerings blur the distinction and have led to disputes between taxpayers and revenue authorities.

Web3 activities pose even greater complexity. The VAT treatment of crypto exchanges, non-fungible tokens (NFTs), staking rewards and decentralised platforms is often unclear, with guidance either limited or entirely absent. As a result, many tax authorities rely on broad interpretative positions rather than detailed legislation, creating uncertainty for businesses and investors.

Financial Inclusion: Critics argue that these taxes disproportionately affect low-income users who rely on mobile money, potentially driving them back to cash.

Compliance on Decentralized Platforms: While centralized exchanges (CEX) can be mandated to collect excise duty, taxing Peer-to-Peer (P2P) or Decentralized Finance (DeFi) transactions remains a significant enforcement hurdle for African tax authorities.

Double Taxation: In some jurisdictions, a single fintech transaction can be subject to VAT on the service, excise duty on the fee, and an e-levy on the transaction value, leading to high cumulative costs for the end-user.

Conclusion

The African tax response to fintech and Web3 is best characterised as adaptive rather than fully formed. Policymakers are borrowing selectively from international best practices while tailoring solutions to local economic realities. As digital business models continue to evolve, tax frameworks will need to remain flexible, principle-based and supported by strong administrative systems.

Greater regional coordination, particularly through economic blocs, could help reduce fragmentation and compliance costs. In parallel, continued investment in tax authority digitalisation and skills development will be critical to ensuring that Africa captures a fair share of value created within its digital economy without undermining innovation.

While significant progress has been made in extending VAT, income tax and withholding tax rules to digital activities, gaps and uncertainties remain, particularly in the Web3 space. The success of Africa’s tax response will ultimately depend on achieving a careful balance between revenue protection, legal certainty and the promotion of sustainable digital innovation.

Sources: Tax Justice Network Africa, McKinsey & Company