Kenya is missing out on tax revenue from the cryptocurrencies sector since players in the sector are cut off from the banking sector, the Blockchain Association of Kenya says.
According to report by Business Daily, the association has informed the National Assembly’s Finance committee that, despite collecting taxes from its clients, players in the crypto sector are not remitting the three percent tax withheld from Kenyans engaged in the sale of digital assets.
In December 2015, the Central Bank of Kenya (CBK) issued a warning to Kenyan citizens regarding the use, possession, and trading of virtual currencies like Bitcoin within the country, asserting that they do not hold legal tender status.
According to the bank, Bitcoin is a type of unregulated digital currency that is not issued or guaranteed by any government or central bank.
Allan Kakai, the Director for Legal and Policy Affairs at the Blockchain Association of Kenya, said that despite withholding the digital asset tax, they have been unable to remit it to the Kenya Revenue Authority (KRA) due to the Central Bank of Kenya (CBK) prohibiting them from operating bank accounts.
“We have withheld the tax since the digital asset tax (DAT) came into effect on September 1, 2023. The CBK told banks not to touch the cryptocurrencies. The CBK blocked us from holding bank accounts,” said Mr Kakai.
He however declined to disclose how much the industry was sitting on in collected but unremitted taxes.
“KRA has imposed a three percent tax on gross fair market value of the DAT that is to be remitted within five working days. But we have not remitted any money.”
The Finance Act of 2023 introduced a 3% tax on the profits earned by cryptocurrency holders from the sale of digital assets. This tax also extends to individuals trading in non-fungible tokens (NFTs).
“We want to be regulated and taxed. We want to be licensed to operate. The biggest challenge with crypto is to be understood,” Mr Kakai said.
Kakai said that the association is urging Members of Parliament to eliminate the Digital Asset Tax (DAT), arguing that taxing based on Gross Fair Market Value could potentially tax entities that are not making a profit.
“Scrap off DAT. Taxation of capital was ruled unconstitutional in the Kenya Revenue Authority vs Stanley Waweru and six others (Article 201(b) (1) of the Constitution of Kenya.”
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