A Bill, dubbed Capital Markets (Amendment) Bill 2022, which seeks to introduce taxation of crypto exchanges, digital wallets, and impose transaction taxes akin to excise duty charged on bank transactions, has been proposed by a Kenyan Member of Parliament (MP).
The proposed amendment Bill allows the Kenya Revenue Authority (KRA) to go after Kenyans that own cryptocurrencies for the purposes of enforcing taxation on their crypto holdings.
The Capital Markets (Amendment) Bill, 2022, seeks to introduce taxation of the crypto exchanges and digital wallets and imposes transaction taxes akin to excise duty charged on bank transactions. @CMAKenya pic.twitter.com/tecTHHOBm5
— BitKE (@BitcoinKE) November 21, 2022
The Bill marks the first time Kenya will bring cryptocurrencies mainstream and extend regulation to capture digital currencies.
The Bill proposes a capital gains tax for the increased market value of crypto during sale or use in a transaction. Currently, banks are mandated to deduct 20% exciste duty on all commission and fees charged on transactions.
Here are more details about the Bill so far:
- The Bill requires persons who own or deal in digital currency to provide the Capital Markets Authority of Kenya (CMA Kenya) with specific information for tax purposes
- Those owning or dealing in digital currency will be required to furnish the regulator with information regarding the amount of the virtual currency in Kenya shillings (KES), type of currency transacted, date of purchase, and date of sale
- 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
- 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 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 trading of digital currencies
- The amendment will outline responsibilities of persons or businesses trading in digital currencies, provide for its taxation, ownership and provide for promotion of innovation in this area
- Within six months of the enactment, a person trading in digital currencies shall apply to the Authority for a licence
- The CMA will ensure Kenya has a centralised electronic register of all transactions in digital currencies
- The Bill seeks to protect Kenyans from risks associated with the unregulated cryptocurrency trade
- It seeks to amend the Capital Markets Act to include a digital currency into the definition of securities
- The CMA will have the power to issue a licence to individuals trading in digital currencies
Interestingly, the Bill propositions seem very similar to policy interventions by UNCTAD which were published in July 2022 aimed at helping to curb further spread of the risks associated with cryptocurrencies and stablecoins.
While the proposed Bill wrongly assumes over 8 million Kenyans hold cryptocurrencies, it nevertheless attempts to justify crypto regulation as a means to protect Kenyans from such investments.
3 key policy interventions proposed by UNCTAD included:
- Ensuring comprehensive financial regulation through the mandatory registration of crypto exchanges and digital wallets and a ban on regulated financial institutions from holding stablecoins and cryptocurrencies or offering related products to clients, and/or imposing financial transaction taxes on cryptocurrency trading
- Restricting or prohibiting the advertisement of crypto exchanges and digital wallets in public spaces and on social media
- Creating a public payment system to serve as a public good, such as a central bank digital currency (CBDC)
UNCTAD added that the International Monetary Fund (IMF) has expressed similar concerns with regard to the risks of using cryptocurrencies as legal tender.
Read / Download the full UNCTAD policy brief below:
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