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 that the Bill will proceed to the second reading where MPs will debate and propose amendments at the third reading and, if approved by the House, will be forwarded to the President for assent.
The committee, chaired by Molo MP Kimani Kuria, 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 important piece of legislation that will protect our country from the proceeds of crime and terrorism financing. Cryptocurrencies are already being traded by millions of Kenyans, yet we have no law to regulate them. We approve this Bill for publication,” Mr Kimani said during the pre-publication review of the Bill.
The amendments to the law are aimed at regulating and taxing the fast-growing digital currency trade.
The Capital Markets (Amendment) Bill, 2023 seeks to introduce a tax on crypto exchanges and digital wallets, imposing a transaction tax similar to the excise duty levied on bank transactions.
Banks will deduct 20 per cent excise duty on all commissions and fees charged on transactions.
Kenyans will pay the Kenya Revenue Authority (KRA) capital gains on the increased market value of the crypto when they sell or use the digital currencies in a transaction, if the bill is passed.
Mr Kirwa told the committee on Thursday that the amendments would provide for governance and oversight in the fast-growing sector and ensure that citizens are not exposed to various risks.
The proposed amendment includes specific provisions to regulate digital currency transactions in Kenya, its creation through crypto mining, regulation of digital currency trading, taxation, ownership and 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 taken into consideration.
“Cryptocurrency is the future. It will be the norm because we will be buying and selling with cryptocurrency. It only takes seconds to transfer a million dollars and no one sees the transaction,” Mr Kirwa told the committee.
“We should be at the forefront of adopting cryptocurrencies like we did with M-Pesa [Safaricom’s money transfer service]. Right now, South Africa and Nigeria have legalised cryptocurrencies, but our central bank is dragging its feet. We need to protect our traders from potential losses. The sector remains largely unregulated globally.
This makes it difficult to determine the value of digital assets held by mostly tech-savvy Kenyans, but the amount could run into billions of shillings.
The Bill requires those who own or trade in digital currency to provide the Capital Markets Authority (CMA) with certain information for taxation purposes.
Those who own or trade in digital currency will be required to provide the regulator with information on the amount of virtual currency in Kenyan shillings.
They will also be required to inform the CMA of the type of virtual currency being traded, the date the virtual currency was acquired and the date it was sold.
“A person who holds or deals in digital currency shall provide the authority with the following information for tax purposes – the amount of the proceeds of the transaction, any costs associated with the transaction and the amount of any gain or loss arising from the transaction,” the bill reads.
A United Nations report last year showed that Kenya has the highest proportion of cryptocurrency users in Africa, highlighting the country’s exposure to the ongoing crypto market meltdown.
The United Nations Conference on Trade and Development report, published in June 2022, states that 8.5 per cent of the population, or 4.25 million people, own cryptocurrencies.
This puts Kenya ahead of developed economies such as the United States, which is ranked sixth with 8.3 percent of the population said to own digital currencies.
The crypto market, known for its wild price swings, has recently lost more than half its value since November last year as investors pulled money out of riskier assets amid fears of soaring inflation and rising interest rates.
This has hit the estimated four million Kenyans, mainly young and small traders, who have flocked to cryptocurrencies in recent years in the hope of quick returns despite warnings from regulators such as the CBK that the emerging assets could be risky.
Former CBK governor Patrick Njoroge said while cryptocurrencies pose risks to financial stability, they could be used to solve problems such as bringing the poor into the financial system or reducing transaction costs.