Kenya Employs Instant Cryptocurrency Tax Tracking Via New System
In the heart of East Africa, Kenya is taking significant strides towards regulating and taxing cryptocurrency transactions, as the digital asset market continues to gain traction among its citizens.
Last year, a proposal was introduced in the National Assembly, aiming to amend the Capital Markets Act. This amendment, if approved, would introduce a capital gains tax on crypto exchanges and an excise duty on transactions. However, the bill remains under consideration in the Assembly after passing through the finance committee.
The Kenya Revenue Authority (KRA) has identified a significant loss of revenue due to the difficulty in tracking and taxing peer-to-peer (P2P) cryptocurrency transactions. To address this, the KRA is planning to implement a real-time tax system for cryptocurrency transactions. This new system aims to capture details such as the transaction date, time, type, and value.
The responsibility for reviewing and deciding on the legal status of cryptocurrency exchanges in Kenya lies primarily with the relevant regulatory authorities of Kenya, such as the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA). The unclear legal status of crypto exchanges may pose a challenge to KRA's efforts to integrate its tax system with these platforms.
Despite these challenges, Kenya ranks among the highest in Africa for cryptocurrency adoption, with approximately four million users. Many young Kenyan traders are attracted to the cryptocurrency market, despite warnings about high risks. In 2022, crypto transactions in Kenya were valued at around $18.6 billion (KES 2.4 trillion).
Low transaction fees, faster transfer times, and good internet penetration are contributing factors to the high rate of crypto adoption in Kenya. However, many crypto users in Kenya use mobile money for P2P transactions to evade regulatory scrutiny.
According to Chainalysis, many Kenyans hold cryptocurrency for preserving savings, commercial purposes, and individual remittances, particularly to Europe and the US. Cryptocurrency is also used for paying for goods and services in Kenya, although this aspect is not heavily regulated.
The KRA has emphasized the importance of implementing a system to track and collect taxes on cryptocurrency transactions. The new system, intended to allow for effective and efficient tax collection, will integrate with cryptocurrency exchanges and marketplaces.
As Kenya navigates the complexities of regulating and taxing cryptocurrency, it joins a growing number of countries worldwide grappling with the same challenges. The implementation of the new tax system will be a significant step towards ensuring that the benefits of the cryptocurrency market are shared equitably among all stakeholders.
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