The Kenya Revenue Authority (KRA) proposes real-time crypto tax monitoring

Nickson Omondi, manager of the digital economy tax office at KRA, said that the tax collection agency planned to roll out a real-time tax collection system that would be integrated into exchanges. Through this initiative, the KRA sought to increase Kenya’s tax base to tap into the growing sector, which reported crypto transactions of about $18.6B in 2022.

The KRA highlighted its tax plans for the 2024/25 financial year, confirming that the new system would monitor and track details like transaction type, date, value, and time. Exchanges such as Coinbase and Binance provided services to the Kenyan crypto market despite a lack of clear-cut regulations by the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA). 

The KRA admits outdated systems are ineffective in monitoring crypto tax 

The Kenya Revenue Authority (KRA) will integrate a new revenue system with cryptocurrency exchanges and marketplaces to track and record all transactions in real-time, the taxman has revealed.

This is part of a strategy to nab tax dodgers in the largely secretive market segment,… pic.twitter.com/tOpnX6aTVi

— BusinessDaily (@BD_Africa) October 16, 2024

According to afcacia.io, the uncertain legal framework for exchanges operating in Kenya hindered the KRA’s efforts to integrate tax systems within crypto exchange platforms. 

KRA’s Omondi confirmed that digital service tax and VAT were introduced in 2021. The two taxes specifically applied to non-residents, entities, or multinationals without physical offices in Kenya but providing services for Kenyan consumers. They allowed the government to collect taxes from individuals or institutions profiting from the Kenyan digital market.

On September 1, 2023, a shift in law brought crypto investors on board. Before then, it needed to be clarified if crypto investors were supposed to pay capital gain tax, turnover tax, or withholding tax. The current taxation regime, which came into effect on the 1st of September through the Finance Act of 2023, required exchanges to remit 3% to the government of Kenya through KRA’s new system. The law also extended to all forms of digital assets, including NFTs.

In answering ‘how the exchanges remitted their 3% taxes’, Omondi said that the matter was still under discussion, although some exchanges were complying. He said the Central Bank of Kenya had advised Kenyan Banks not to deal directly with crypto exchanges, although it had not been declared illegal. He added that case laws worldwide recognized all taxes as legal, including taxes collected on illegal activity. 

KRA outlines procedures for filing and remitting crypto taxes and penalties

In an interview with BitKE’s David, KRA’s Omondi disclosed that investors could file the taxes themselves, although it was easier for exchanges to handle the remitting of tax. 

Regarding digital service tax, Omondi said the KRA had no mechanism to tax any non-resident earnings from Kenya before 2019. Effective July 1, 2021, the law was amended to impose the digital service tax on non-residents alone. However, investors were responsible for filing and remitting the digital asset tax.

Omondi also affirmed that there were enforcement measures requiring exchanges that failed to remit the taxes collected within five business days to pay a penalty of 5% of the taxes not remitted. There was also a 1 % interest per month for the unremitted taxes. 

The KRA was mandated to enforce section 96 of the Tax Procedures Act, where it partnered with other government agencies to take further measures, such as banning the exchange’s access to the Kenyan market. The KRA could also collaborate with partnering countries like the U.K. based on existing frameworks to enforce mutual assistance in collecting taxes. 

The 2024 Finance Bill had nothing concerning digital asset tax except wavering penalties on unpaid taxes.