Kenya’s battle against cryptocurrency users is set to intensify

Cryptocurrency trading has been popular in Kenya for years now, where thousands of people use digital currencies for investments, savings, and peer-to-peer transactions.

Despite its benefits, cryptocurrency’s decentralized and pseudonymous structure has opened up opportunities for tax evasion.

As a result, tax authorities such as Kenya’s Revenue Authority (KRA) plans to implement digital systems to capture crypto transactions, citing a significant loss of tax revenue due to unregulated crypto activities.

Then, the legislative arm noted that the country’s central bank had been very lackadaisical in regulating Kenya’s crypto market.

At the time, the chairman of the parliamentary committee, Molo MP, Kimani Kuria argued that the bill was being read to safeguard the Kenyan people against harmful illegal practices.

He stated; “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.”

In October of the same year, a couple of months earlier, a Kenyan parliamentary committee urged the country’s information technology regulator to temporarily halt the operations of the cryptocurrency project Worldcoin within the Kenyan border, pending the establishment of more rigorous regulations.

The government halted the initiative owing to privacy concerns over its practice of scanning users’ irises to create a digital ID that would create a new “identity and financial network.”

Tools for Humanity, a business that OpenAI CEO Sam Altman co-founded, launched Worldcoin in several nations worldwide, including Kenya.

However, according to a police record, as seen on Reuters, Kenyan police closed an investigation into claims that Worldcoin unlawfully gathered and transmitted user personal data, setting the stage for Worldcoin to make a comeback in East Africa’s largest tech market.

During the week, the tax body revealed that it intends to implement a new real-time tax system that will be integrated with cryptocurrency exchanges, allowing it to monitor crypto transactions and collect taxes.

Kenya has an estimated four million cryptocurrency users, making it one of the largest in Africa, and the East African country is eager to tax them as it expands its revenue base.

“Though the sector remains unregulated by reporting authorities such as the Central Bank of Kenya (CBK), and the Capital Markets Authority (CMA), the earnings from the sector are legally taxable.” the KRA stated.

“The lack of a robust system to collect taxes on cryptocurrency transactions has resulted in significant loss of revenue for the government,” it added.

Kenya between 2021 and 2022 according to the KRA, as seen in the East African, digitally transacted up to Sh24 trillion, none of which was taxed.

In the same period, crypto users grew as much as 187% from 253,000 to 729,200.

In August 2024, it was reported by Techcabal that The Finance Act 2023’s Digital Asset Tax (DAT) would no longer be required of cryptocurrency exchanges operating in Kenya.

This was concerning the 3% tax on profits from trading cryptocurrencies and other digital assets implemented in 2023. The Kenyan court of appeal ruled that the tax was unlawful.

Crypto exchanges like Coinbase and Binance were subject to DAT. Along with a tax return that includes all necessary information and deductions, the law also mandated that crypto taxes be sent within five working days.