The Kenya Revenue Authority (KRA) has announced its intention to transition from its outdated system to a more advanced one as part of a comprehensive tax system overhaul. The new system, which utilizes emerging technologies, will enable real-time tracking of cryptocurrency transactions to combat tax evasion and promote a “more transparent” organization.
KRA Set to Monitor Crypto Transactions in Real-Time
On Tuesday, local media reported that the KRA revealed its strategy to monitor and tax cryptocurrency transactions within the nation using this new system. In a document detailing their tax collection methods for the 2024/2025 fiscal year, the KRA indicated that the revamped system would connect with exchanges and marketplaces to collect transaction information:
The system will integrate with cryptocurrency exchanges and marketplaces to identify and document cryptocurrency transactions. It will capture transaction details such as date, time, type, and value.
This initiative is part of the nation’s broad tax reforms aimed at widening the tax base and curbing tax evasion. The KRA pointed out that the “outdated” system has hindered its ability to monitor and tax digital asset transactions, which has resulted in a “significant loss of revenue for the government.”
Last week, Kenyan regulatory authorities outlined their plan to leverage artificial intelligence (AI) and machine learning technologies to analyze and detect instances of tax evasion, with the goal of enhancing revenue collection efficiency and compliance.
In addition, the KRA referenced Section 3 of Kenya’s Income Tax Act, which permits the taxation of digital asset income, stating, “Our aim is to establish a robust and efficient system that will enable the KRA to effectively and efficiently collect taxes on cryptocurrency.”
Furthermore, they emphasized the growing necessity for a system capable of tracking and collecting taxes on these transactions, considering the rapid adoption rates and significant potential in the industry.
Currently, Kenya has approximately four million cryptocurrency users, with transaction values reaching about $18.6 billion in 2022, according to regulator estimates.
Kenyan Regulatory Landscape
Despite its growing popularity, the cryptocurrency sector in Kenya remains predominantly unregulated. In a Tuesday interview with BitKE, Nickson Omondi, Manager at KRA’s Digital Economy Tax office, discussed the recent advancements in digital asset taxation in the country.
Omondi explained that there have been existing laws in Kenya related to the taxation of digital assets; however, these laws specifically targeted non-residents, that is, entities and multinationals without a physical presence in Kenya but providing services in the country.
In September 2023, tax law underwent a revision aimed at bringing cryptocurrency investors into the fold. Omondi noted the previous ambiguity regarding the taxation of digital asset users and their earnings from such transactions.
Currently, regulations stipulate that crypto exchanges are required to withhold 3% of a digital asset transaction and remit it to the Kenyan government, as highlighted by the Digital Economy Tax Manager. He reiterated that the law mandates users to pay taxes on their digital assets.
Finally, he mentioned that different regulatory authorities in Kenya are collaborating on digital asset regulations, which he believes is a positive development for the industry.
The total cryptocurrency market capitalization is currently at $2.22 trillion according to the weekly chart. Source: TOTAL on TradingView
Image featured from Unsplash.com, chart from TradingView.com
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