A parliamentary committee has backed a Bill that will allow the taxation of more than four million Kenyans estimated to be trading in cryptocurrencies as MPs accused the Central Bank of dragging its feet on regulating the industry.
The National Assembly’s Finance and National Planning Committee has approved the publication of the Capital Markets (Amendment) Bill, 2023 sponsored by Mosop MP Abraham Kirwa.
This means the Bill will proceed to the second reading where MPs will debate and propose amendments at its third reading and forwarded to the President for assent if approved by the House.
The committee chaired by Molo MP Kimani Kuria has approved Mr Kirwa’s proposal to amend the Capital Markets Act, Cap 485 to include digital currencies in the definition of securities.
“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,” Mr Kimani said during the pre-publication scrutiny of the legislative proposal.
The changes to the law are aimed at regulating and taxing the fast-growing digital currency trade.
The Capital Markets (Amendment) Bill, 2023 seeks to introduce taxation of the crypto exchanges and digital wallets and imposes transaction taxes akin to excise duty charged on bank transactions.
Banks deduct 20 percent excise duty on all commissions and fees charged on transactions.
Kenyans will pay the Kenya Revenue Authority (KRA) capital gains for the increased market value of the crypto when they sell or use the digital currencies in a transaction if the Bill is approved.
Mr Kirwa told the committee on Thursday that the changes would provide for governance and oversight in the area that is fast growing and ensure citizens are not exposed to various risks.
The proposed amendment provides for specific provisions to govern the digital currency transactions in Kenya, its creation through crypto mining, provide regulation around trading of digital currencies, provide for its taxation, ownership and provide for promotion of innovation in the sector.
Mr Kirwa said the proposed amendment would also ensure that environmental aspects of digital currency generation and crypto mining are considered.
“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,” Mr Kirwa told the committee.
“We should be on the frontline in adopting cryptocurrencies like we did with the M-Pesa [Safaricom’s money transfer service]. Right now South Africa and Nigeria have legalised cryptocurrencies, yet our Central Bank is dragging its feet. We need to protect our traders from potential losses.” The sector remains largely unregulated across the world.
This makes it difficult to establish the value of digital assets held by the mostly tech-savvy Kenyans, but the amount could run into billions of shillings.
The Bill requires persons who own or deal in digital currency to provide the Capital Markets Authority (CMA) with specific information for taxation.
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.
They will also be required to inform the CMA of the type of virtual currency transacted in, the date on which the virtual currency was acquired and the date it was sold.
“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 Bill states.
A report by the United Nations last year showed that Kenya has the largest share of its population with cryptocurrencies in Africa, pointing to the country’s exposure to the ongoing meltdown in the crypto market.
The report by the United Nations Conference on Trade and Development released in June 2022, said that 8.5 percent of the population or 4.25 million people own cryptocurrencies.
This places Kenya ahead of developed economies such as the United States, which is ranked sixth with 8.3 percent of its population said to be owning digital currencies.
The crypto market, known for its wild price swings, recently shed more than half of its value since November last year as investors pulled out money from riskier assets amid worries over soaring inflation and rising interest rates.
This has hit the estimated four million Kenyans, mainly young and small traders, who in recent years have flocked to cryptocurrencies in the hope of quick returns, despite warnings from regulators such as the CBK that the emerging assets could be high-risk.
Former CBK governor Patrick Njoroge said cryptocurrencies posed risks to financial stability but they could be used to solve problems such as bringing the poor into the financial system or cutting transaction costs.