As crypto usage and crypto transactions exponentially grow in Sub-Saharan Africa, legislators have up their game to regulate the digital sector entirely. In a Tuesday update, the Kenya Revenue Authority (KRA) unveiled a new tax system.
This development aims to track crypto activities in the East Africa country. Even though financial regulators have been reluctant to supervise the crypto space, the new tax approach seeks to address tax cheats and unlawful activities.
Kenya Seeks to Regulate Crypto Transactions
The KRA noted that the existing taxation system restricts the agency from extending its enforcement action to the crypto world, exposing investors to huge losses and risks. This forced the KRA to upgrade its tax system to meet Section 3 of the country’s income tax, conferring the regulator’s legal rights of taxing income generated from crypto transactions. The upgrade of the tax system aims to allow the KRA to monitor every transaction and capture relevant details, including the time and funds transferred.
Citing the decentralized nature of crypto, the KRA proposed that the new system be integrated into local and foreign exchange. During the development of the new tax system, the agency plans to leverage the power of emerging technologies such as artificial intelligence (AI) and machine learning to reduce tax evasion.
Citing the recent report, the KRA noted that between 2021 and 2022, crypto transactions amounted to over Kshs 2.4 trillion, slightly outpacing Kenya’s gross domestic product (GDP). This statistic demonstrated that Kenya is adopting crypto assets.
This illustrates that despite Kenya using crypto to hedge on biting inflation, digital assets have become a convenient method to settle payments and make purchases. Also, since crypto has no central power, digital assets are used as a saving method.
With the numerous benefits of crypto transactions, the KRA noted criminals are using these assets to engage in fraud, money laundering, and illicit financial transactions. The bill for upgrading the KRA tax system was submitted to the Kenya parliament early last week.
Community Reacts to KRA New Tax Regime
A review of the bill demonstrates that crypto transactions are volatile and should be under the watch of regulators. After carefully reviewing the bill, the Kenya National Assembly greenlighted the bill, granting the KRA a go-ahead to develop the new system.
The bill’s approval receives mixed reactions from the millennials and Gen Z in Kenya.
On X Kenyan, youth expressed their disappointment with the new bill, attributing it to the cause of recent protests that claimed the lives of many. During the Parliament proceeding, a member of Parliament, Abraham Kirwa, urged the financial regulators to amend the Capital Market Bill of 2023.
In his statement, Kirwa urged the regulators to define digital assets as securities. If Parliament approves the amendment to the Securities Act, the government will expand its revenue stream. The new proposal allows the KRA to collect taxes from exchanges and excise duty for every transaction.
Conclusion
The approval of the new bill and the introduction of a new tax system demonstrated that Kenya has become the hotbed for crypto in Africa. Kenya’s introduction of a real-time tax system to monitor crypto transactions marks a significant step toward regulating the rapidly growing digital asset space. While the move aims to curb illegal activities and enhance tax compliance, it has sparked mixed reactions among the younger population, especially millennials and Gen Z.
As Kenya continues to adopt crypto assets for various uses, the government’s efforts to balance innovation with regulation will be key in shaping the future of the country’s digital economy. The success of this initiative could also serve as a model for other nations in the region seeking to regulate the evolving crypto landscape.
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