The government has shifted its focus toward taxing digital transactions. This move is driven by the rapid growth in decentralized digital currency use, and aims to close a significant tax gap. The Kenya Revenue Authority (KRA) is leading this effort by integrating real-time systems to monitor and tax crypto exchanges.
Why Cryptocurrency Trading in Kenya is a Growing Concern for Tax Authorities
In recent years, cryptocurrency trading has gained immense popularity in Kenya. Thousands of users engage in investments, savings, and peer-to-peer transactions using digital currencies like Bitcoin and Ethereum. However, the decentralized nature of these currencies has led to challenges for tax officials. Kenya’s tax officials now view cryptocurrencies as a potential source of lost revenue due to the lack of regulation.
The KRA has identified that millions of Kenyans are actively trading in the crypto market. As a result, the tax body plans to implement digital monitoring systems to capture these transactions and ensure compliance. This initiative comes as the government seeks to expand its revenue base and regulate crypto exchanges more effectively.
In December 2023, Kenya’s parliament proposed a bill targeting the taxation of cryptocurrency traders. The bill aimed to tax an estimated four million cryptocurrency users across the country. Lawmakers emphasized the need to safeguard Kenyans from potential financial crimes and terrorism financing associated with unregulated crypto transactions.
Molo MP Kimani Kuria, chair of the parliamentary committee on Finance, stated, “This law will protect Kenyans from illegal activities in the crypto space. With millions already trading cryptocurrencies, regulation is urgently needed.” The proposed legislation, if passed, would empower tax authorities to monitor and tax crypto transactions more effectively.
In October 2023, Kenya faced yet another significant crypto-related issue. The government temporarily halted the operations of the Worldcoin cryptocurrency project due to privacy concerns. The project launched by OpenAI CEO Sam Altman’s company, Tools for Humanity, aimed to create a global identity network using biometric data. However, the Kenyan government raised concerns about the privacy implications of scanning users’ irises to create digital IDs.
Though Worldcoin temporarily ceased operations, recent reports suggest the project may return to Kenya after law enforcement closed investigations into data privacy violations.
This week, the Kenya Revenue Authority announced plans to implement a real-time tax system to monitor cryptocurrency transactions. By integrating the system with major crypto exchanges, the KRA aims to track and tax digital currency activities efficiently.
Kenya, which has one of the largest crypto user bases in Africa, has seen a 187% growth in crypto traders from 2021 to 2022. Despite this growth, the absence of regulations has resulted in massive revenue losses for the government. Between 2021 and 2022 alone, the country saw Sh24 trillion in digital transactions, none of which were taxed.