The Kenya Revenue Authority (KRA) plans to introduce a real-time tax system to track and tax cryptocurrency transactions, aiming to close a significant gap in revenue collection on digital assets, TechCabal reported on October 14.

Kenya, a leader in cryptocurrency adoption in Africa, has around 4mn users, and in 2022, crypto transactions reached approximately $18.6bn—outpacing the annual transactions of some Kenyan commercial banks.

Cryptocurrency is gaining popularity in Africa, where it is used for savings, commercial payments, and remittances. This rise has caught the attention of the Kenyan government, which sees the sector as an untapped source of revenue.

The KRA’s move mirrors a global trend of tax authorities trying to regulate and tax the volatile yet expanding digital currency market. Kenya’s initiative places it alongside other nations such as Nigeria and South Africa attempting to develop frameworks for taxing cryptocurrencies, though such efforts face hurdles due to the decentralised and often opaque nature of crypto transactions.

In this context, the Capital Markets (Amendment) Bill, 2023, introduced by Mosop MP Abraham Kirwa, aims to amend the Capital Markets Act (Cap. 485A) to include digital currencies within the definition of securities. If passed, this amendment would allow the KRA to impose a capital gains tax on exchanges and an excise duty on cryptocurrency transactions, Citizen Digital reported on October 16.

The KRA's new system, part of its strategy for the financial year 2024/25, will integrate with cryptocurrency exchanges and capture details like transaction dates, values, and types. Many crypto users in Kenya rely on peer-to-peer (P2P) networks, using mobile money services to bypass regulators. The KRA acknowledged that its outdated systems have led to “a significant loss of revenue for the government” and aims to modernise its approach to tax collection, citing the application of Kenya’s Income Tax Act to crypto earnings.

According to Statista, Kenya’s cryptocurrency market is projected to generate $41.7mn in revenue by 2024, but growth is expected to decline slightly, with revenue reaching $40mn by 2025. The average revenue per user is estimated at $57.2 in 2024, with user numbers expected to hit 733,300 by 2025. The mobile money ecosystem and tech-savvy population drive crypto adoption, though user penetration remains modest at around 1.3%.

Despite the Central Bank of Kenya and the Capital Markets Authority issuing warnings about the risks associated with cryptocurrency, regulatory oversight remains minimal. Proposed amendments to the Capital Markets Act are still pending in the National Assembly.

As countries embrace the potential of cryptocurrencies, Gleb Yakolev, CEO of ITI Funds, predicts significant growth, suggesting the market could expand tenfold to match the $1.4 trillion gold market, given its current capitalisation of around $240mn. He says that early investments in this sector could yield substantial returns if it takes off.