Inside KRA’s Plan To Spy On Crypto Transactions To Nab Tax Cheats And Expand Revenue Base

The Kenya Revenue Authority (KRA) is gearing up to introduce a new tax system that will allow real-time tracking of cryptocurrency transactions. This move aims to identify tax evaders and monitor potential criminal activities in Kenya’s growing crypto space—an area that has previously flown under the radar.

Cryptocurrency refers to digital money secured through cryptographic techniques, running on decentralized blockchain networks. This structure makes it highly resistant to counterfeiting or double-spending. Bitcoin, launched in 2009, is the pioneering cryptocurrency and remains the largest by market cap.

Unlike traditional currencies, cryptos are typically not issued by central banks, making them immune to direct government control. While digital currencies are not yet as mainstream in Kenya as other financial technologies like mobile money, KRA sees significant potential in the market, which, according to UNCTAD, involves around four million users.

KRA estimates that the Kenyan crypto market processed transactions worth about Ksh.2.4 trillion between 2021 and 2022—almost 20% of the country’s gross domestic product (GDP).

“Even though the sector is unregulated by entities like the Central Bank of Kenya and the Capital Markets Authority, income from crypto trading is still subject to taxation under Section 3 of the Income Tax Act. The absence of a robust system for collecting taxes on crypto transactions has led to substantial revenue loss for the government,” the authority explained.

The proposed system aims to connect with crypto exchanges and marketplaces, enabling KRA to track and record transaction details, such as the date, time, type, and value of each transaction.

Cryptocurrencies are often used in Kenya for savings, international payments, and remittances. Unlike traditional banking systems and credit cards, crypto allows for direct, peer-to-peer transactions across borders, without the need for intermediaries. This means users don’t have to purchase foreign currencies or pay fees for services like Western Union.

However, the decentralized nature of digital currencies has made them attractive for illegal activities like fraud, theft, and money laundering. Additionally, the extreme price volatility of these digital assets means that investors must keep a close eye on market trends. For example, Bitcoin’s price skyrocketed to nearly $65,000 in November 2021 before plunging below $20,000 at the beginning of 2023. It has since rebounded to over $60,000 (about Ksh.7.8 million).

In a bid to tighten oversight of the sector, a new bill was introduced in the Kenyan Parliament last year, aimed at taxing crypto transactions and digital wallets. The Capital Markets (Amendment) Bill, 2023, proposed by Mosop MP Abraham Kirwa, seeks to amend the Capital Markets Act, Cap. 485A, to include digital currencies within the definition of securities. If approved, this would empower KRA to collect capital gains tax on crypto exchanges and levy excise duty on transactions. The bill has received approval from the National Assembly finance committee and is currently under review in Parliament.