Cryptocurrency transactions have been on the increase here in Kenya and currently stand at an approximated KSh 2.4 trillion between 2021 and 2022, accounting for nearly 20% of the country's GDP. The growth has put pressure on the Kenya Revenue Authority to develop ways of tracking and consequently taxing the cryptocurrency transactions. While currently the cryptocurrency industry is not regulated by critical authorities such as the CBK and the CMA, income accrued from crypto trading is legally taxable under Section 3 of the Income Tax Act.
KRA is thus developing this digital tax system that will track and capture data from cryptocurrency exchanges and marketplaces to address challenges in collecting revenue due to the anonymous nature of crypto transactions. It captures key information on transactions while calculating tax liability in line with the domestic regulations. Kenyan investors are increasingly becoming frequent users of cryptocurrencies for savings preservation, international transactions, and commercial imports driven mainly by the ease and irreversibility of the digital asset transactions.
Aside from this digital tax system, Kenya's Parliament has been contemplating legislation that would make the taxation of cryptocurrency assets real. Proposed by MP Abraham Kirwa, the Capital Markets Amendment Bill 2023 seeks to classify digital currencies as securities and plans to impose levies on crypto exchanges and wallets, including capital gains. This bill regulates crypto trading, mining, and ownership while fostering innovation in the sector, inclusive of its taxation.
Scrutiny of cryptocurrencies is increasingly growing worldwide, supplemented by local legislative efforts representing both the opportunities and risks of the sector. In Kenya, against the occurrence of some critical tremors-such as the collapse of companies like FTX in 2022-the country is trying to set up a more structured approach to deal with the crypto economy that is gaining ground.