Plans In Motion To Aggressively Tax & Regulate Kenya’s Crypto Industry
If lawmakers pass revisions to the law regulating and taxing the rapidly expanding digital currency sector, the Kenya Revenue Authority (KRA) would pursue the more than four million Kenyans who possess cryptocurrencies.
By taxing cryptocurrency exchanges and digital wallets, the Capital Markets (Amendment) Bill, 2022 aims to implement a system similar to the excise duty levied on bank transactions. All commissions and transaction-related fees are subject to a 20 percent excise duty deduction by banks.
If the Bill is enacted, Kenyans will be required to pay the KRA capital gains tax for the increased market value of the cryptocurrency when they sell or use it in a transaction. People who have turned trading in cryptocurrency into a company will probably need to pay income tax on their profits.
“Where the digital currency is held for a period not exceeding twelve months, the laws relating to income tax shall apply or for a period exceeding twelve months, the laws relating to capital gains tax shall apply,” the Bill, sponsored by Mosop MP Abraham Kirwa, says.
Introducing cryptocurrency into the mainstream tax net and expanding regulation to cover cryptocurrency transactions would be firsts for Kenya.
The crypto industry remains unregulated in Kenya, as it largely is across the globe. Because of this, it is challenging to estimate the worth of the digital assets owned by Kenyans, but the sum may be in the billions of shillings.
The Bill, according to local media, mandates that specified information be provided to the Capital Markets Authority (CMA) for tax purposes by anybody who holds or deals in digital currency. Amounts of virtual currency in Kenya shillings must be provided to the regulator by those who own or deal in digital currency. In addition, they must tell the CMA what kind of virtual currency was used, when it was bought and sold, and what type of virtual currency it was.
“A person who possesses or deals in digital currency shall provide the Authority with the following information for tax purposes—the amount of proceeds from the transaction, any costs related to the transaction and the amount of any gain or loss on the transaction,” the Bill states.
The Bill was introduced six months after a United Nations assessment revealed that Kenya had the highest percentage of its population using cryptocurrencies in Africa, highlighting the nation’s vulnerability to the ongoing collapse in the crypto industry. The recent industry upheaval caused by the failure of one of the world’s top crypto exchanges, FTX, is reported to have also impacted locals.
According to a survey by the United Nations Conference on Trade and Development (UNCTAD) published in June, 4.25 million people, or 8.5 percent of the population, in the country are cryptocurrency owners.
Since November of last year, the cryptocurrency market, which is notorious for its dramatic price swings, has lost more than half of its value as investors have taken their money out of riskier investments due to concerns about skyrocketing inflation and rising interest rates.
In spite of warnings from regulators like the Central Bank of Kenya (CBK) that the emergent assets can be high-risk, an estimated four million Kenyans, mostly young and small traders, have been affected by this. However, CBK Governor Patrick Njoroge also maintains that while cryptocurrencies posed hazards to financial stability, they could also be used to address issues like increasing financial inclusion for the underprivileged or reducing transaction costs.
According to Chainalysis, Kenyan investors purchase cryptocurrencies to protect their funds and conduct international transactions for either personal or business use, such as buying items to import and sell, for individuals who reside in regions such as Europe and North America.
Payment for imports via cryptocurrency is considered convenient and quick because dealers do not have to acquire dollars using Kenya shillings or pay fees to international money transfer operators.
“The amendment will provide for specific provisions to govern digital currency transactions in Kenya, including the definition of digital currencies, its creation through crypto mining and provide for regulations around the trading of digital currencies,” Mr Kirwa said.
“The amendment will also outline responsibilities of persons or businesses trading in digital currencies, provide for its taxation, ownership and provide for the promotion of innovation in this area.”
The modifications to the CMA Act, according to the first-term MP, will stimulate public engagement in an equitable and decentralized financial system based on smart contracts, helping Kenyans tap into the global economy.
“Within six months of the enactment.. a person trading in digital currencies shall apply to the Authority for a licence,” the Bill says.
The CMA will make sure that all digital currency transactions in Kenya are recorded in a single, centralized computerised register. The Bill aims to shield Kenyans from the dangers posed by unregulated bitcoin trading. It attempts to change the Capital Markets Act to define a digital currency as a security.
In a policy brief published in June, UNCTAD urged Kenya and other developing nations to tax and regulate the cryptocurrency market in order to reduce their exposure to the collapse of the cryptocurrency market and other risks of financial instability. The UN organization suggested making crypto exchanges, digital wallets, and tax transactions subject to government registration in order to deter investment in the industry.
“A person who trades in digital currencies shall keep records of digital currency transactions, including purchases and sales, pay taxes on any gains that are made from transactions in digital currencies in accordance with the applicable laws,” the Bill states.
Featured Image Credits: Coinweez