Over 4 million Kenyans could soon be paying taxes for their digital asset holdings after a proposed draft bill received the backing of parliament’s finance committee.
The amendments to the Capital Markets Bill 2023 were proposed by MP Abraham Kirwa and have been approved by the National Assembly’s Finance and National Planning Committee.
It now proceeds to the house floor for debate; if it sails through, the president’s signature will be the next step. With Kenyan President William Ruto on an unpopular push to collect more taxes, the bill is unlikely to face any hurdles as his ruling party controls a majority of both parliamentary houses.
The new bill comes three months since yet another bill—the Finance Bill—imposed a 3% digital asset tax on all sales, including non-fungible tokens (NFTs).
The bill will change the definition of securities to now include digital assets, and while this gives the asset class legal recognition, it also comes with new taxes for the industry.
Exchanges and wallets will be among the first to be pursued. The bill will impose transaction taxes on the trading platforms, much like the excise duty that banks incur on their transactions. In Kenya, this duty stands at 20% on all bank fees and commissions.
Traders will now pay capital gains to the country’s tax agency for the increase in the value of their digital asset holdings whenever they sell them or use them for payments, the bill states.
“A person who possesses or deals in digital currency shall provide the [tax agency] 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,” according to a part of the bill.
The bill could unlock hundreds of millions of dollars in additional taxes for a Kenyan government that has been rocked by a depreciating shilling and a rising cost of living.
The country’s Blockchain Association says it has been pushing for the collection of the three-percent digital asset tax since it came into effect in September. However, it hasn’t remitted any of it as the country’s commercial banks have blackballed the industry. The association’s director of legal affairs, Alan Kakai, told lawmakers a month ago that the industry was sitting on “billions of shillings” in collected but unpaid taxes.
Kenya to regulate digital assets
Aside from taxation, the new bill seeks to formally recognize and regulate other aspects of digital assets. It caters to block reward mining, provides guidelines for ‘crypto’ trading, and delves into cybersecurity, custody, and more. It also briefly talks about the environmental effects of block reward mining.
According to MP Kimani Kuria, the committee’s chairman, the bill will promote innovation while protecting Kenyan investors.
“This is a very critical law that will guard our country against proceeds of crime and terrorism financing. Cryptocurrencies are already being traded by millions of Kenyans yet we have no law to govern it. We approve this Bill for publication,” he stated before the bill was published.
Kenya is estimated to have at least 4.25 million digital asset owners, equating to over 8.5% of the population, a bigger share than some established players like the United States. However, like in most African countries, the sector operates in regulatory limbo. The closest the industry has got to clarity is a couple of warnings by the central bank that investors stand to lose all their money by investing in ‘crypto.’
“Cryptocurrency is the future. This will be the norm because we will buy and sell using cryptocurrencies. It just takes seconds to transfer a million dollars, and nobody is seeing the transaction,” commented Kirwa, the legislator behind the bill.
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