Kenyans who trade in cryptocurrencies will be required to pay taxes if MPs approve changes to the law seeking to regulate and tax the digital currency trade.
The Capital Markets Amendment Bill, 2022 , sponsored by Mosop MP Abraham Kirwa, intends to introduce taxation of the crypto exchanges and digital wallets and also impose transaction taxes related to excise duty charged on bank transactions.
The Bill seeks to shield Kenyans from risks associated with the unregulated cryptocurrency trade and also amend the Capital Markets Act to include digital currency into the definition of securities and give CMA the authority to issue licenses to individuals trading in digital currencies.
The move comes after a report released by United Nations Conference on Trade and Development (UNCTAD) indicated that 8.5 percent of the population or 4.25 million people have cryptocurrencies.
UNCTAD had urged developing countries to regulate and tax the cryptocurrency industry to limit exposure to the meltdown in the crypto market and risks of financial instability.
According to UNCTAD, governments ought to implement mandatory registration for crypto exchanges and digital wallets and tax transactions to make the sector less attractive .UNCTAD also wants banks and other financial institutions blocked from holding stablecoins and cryptocurrencies or offering related products to clients.
The Crypto sector in Kenya and even in the developed world is not regulated hence its hard to establish the value of digital assets owned by crypto traders amounting to billions of shillings.
According to the bill ,a person who trades in digital currencies is required to keep records of digital currency transactions, including purchases and sales and pay taxes on any gains made from transactions in digital currencies .
If passed into law, crypto traders will pay Kenya Revenue Authority capital gains for the increased market value of the crypto when they sell or use the digital currencies in a transaction. Those who have made trading in cryptocurrencies business are likely to pay income tax on their earnings.
Where the digital currency is held for a period not exceeding twelve months, the laws relating to income tax shall apply or for a period exceeding twelve months, the laws relating to capital gains tax shall apply.
The Bill requires persons dealing in digital currency to provide the Capital Markets Authority specific information for tax purposes .They also will be required to furnish the regulator with information regarding the amount of the virtual currency in Kenya shillings and inform the CMA of the type of virtual currency transacted in, the date on which the virtual currency was acquired and the date on which the virtual currency was sold.
The bill also states that, 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 also outline responsibilities of persons or businesses trading in digital currencies, provide for its taxation, ownership and provide for promotion of innovation in this area.
The changes to the CMA Act will encourage citizen participation in an equitable and decentralised financial system that utilises smart contracts, connecting Kenyans to global markets.
The bill further states that within six months of the enactment ,a person trading in digital currencies shall apply to the Authority for a licence and that CMA will ensure Kenya has a centralised electronic register of all transactions in digital currencies.