Kenya Moves To Tax Crypto Exchanges Despite Unclear Stance On Crypto
If new regulations are implemented, Kenya will begin taxing cryptocurrency exchanges for fees they receive from the more than 4 million people who trade digital currencies there.
Platforms that make it possible to buy and sell cryptocurrencies and other digital assets are required by the new rules governing the payment of the digital service tax to pay a 1.5 percent duty, reports Kenyan publication Business Daily Africa.
“For the purposes of these Regulations, a taxable electronic, Internet or digital marketplace supply include…facilitation of online payment for, exchange or transfer of digital assets excluding services exempted under the Act,” say the Value added Tax (Electronic, Internet and Digital Marketplace Supply) Regulations, 2023 published by Treasury Cabinet Secretary Njuguna Ndung’u.
Anything created or kept digitally with value might be considered a digital asset. Cryptocurrencies like bitcoin, data, photos, videos, and textual content are all examples of digital assets.
Kenya imposed a 1.5 percent digital service tax in January 2021, and according to officials, it has already helped stop some international corporations from evading taxes. It is assessed on international companies operating outside of Kenya that provide services to Kenyans via an online marketplace but are not Kenyan-registered.
A low of 0.9 percent to 4.9 percent in fees are levied by well-known online exchanges for buying and selling cryptocurrencies. Cryptocurrency exchanges are commercial marketplaces where users can purchase and trade digital assets like Bitcoin, Ethereum, and Tether, among others. Binance, Coinbase, Bitstamp, Bitpanda, Kraken, Coinmama, UpBit, and eToro are some of the notable exchanges.
Due to the industry-wide ripple effects of Sam Bankman-Fried’s FTX cryptocurrency exchange’s bankruptcy, they were late last year forced to reassure customers that their assets remain secure. Binance and Coinbase, two of the world’s largest crypto exchanges, have made efforts to distance themselves from the debacle and reaffirm their commitment to keeping operations above board.
The sudden demise of FTX and Bankman-Fried’s trading firm Alameda Research in November of last year, which were formerly seen as industry mainstays, severely damaged confidence in the market for digital assets. Before it filed for bankruptcy, FTX had USD 9 B in obligations and less than USD 1 B in assets that could be sold for a profit.
The crypto industry, in both developed and developing parts of the world, largely operates on the fringes of regulation and is mostly uncontrolled. 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 according to estimates.
According to a United Nations Conference on Trade and Development (UNCTAD) report published in June of last year, 4.25 million people, or 8.5 percent of the population, in the country are cryptocurrency owners, ahead of developed economies such as the U.S.
As investors withdrew funds from riskier assets amid concerns about skyrocketing inflation and rising interest rates, the cryptocurrency market, notorious for its violent price swings, recently lost more than half of its value since last November.
Despite warnings from regulators like the Central Bank of Kenya (CBK) that emergent assets might be high-risk, young and small traders have recently rushed to cryptocurrencies in the hope of quick gains. In a warning to Kenyans, CBK Governor Patrick Njoroge stated that while cryptocurrencies posed hazards to financial stability, they could also be used to address issues like integrating the underprivileged into the financial system or reducing transaction costs.
According to Chainalysis, Kenyan investors purchase cryptocurrencies to protect their funds and engage in international transactions for personal remittances for individuals working in regions such as Europe and North America or for business use, such as buying items to import and sell. Because traders don’t have to pay fees to money transfer companies like Western Union or buy dollars using Kenyan shilling, paying for imports with bitcoin is considered as convenient and quick.
Kenya and other developing nations were urged by UNCTAD in a policy brief published in June to regulate and tax the cryptocurrency market in order to reduce their exposure to the collapse of the cryptocurrency market and the associated 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.
Featured Image Courtesy: Forbes
