The National Assembly’s Finance and National Planning Committee in Kenya has endorsed the Capital Markets (Amendment) Bill, 2023. According to a local report, this bill, sponsored by Mosop MP Abraham Kirwa, aims to introduce regulations and taxation mechanisms for the country’s burgeoning digital currency market.
Regulatory framework and taxation measures
The proposed legislation seeks to amend the Capital Markets Act, Cap 485, bringing digital currencies under the definition of securities. This move could pave the way for more stringent oversight of the sector, which is currently largely unregulated. Key features of the bill include the taxation of crypto exchanges and digital wallets and the imposition of transaction taxes similar to the excise duty charged on bank transactions.
Under this new framework, Kenyan traders will be required to pay capital gains to the Kenya Revenue Authority (KRA) based on the increased market value of their crypto assets upon selling or using them in transactions. The bill also mandates that individuals engaged in digital currency trading furnish the Capital Markets Authority (CMA) with detailed information for taxation purposes. This includes the amount of virtual currency held, the type of currency transacted, and dates of acquisition and sale.
Kenya’s position in the global crypto market
Kenya’s proactive stance in regulating cryptocurrencies comes at a time when the global crypto market is experiencing significant volatility. A United Nations report in 2022 highlighted that Kenya has the largest share of its population owning cryptocurrencies in Africa. This places the African nation ahead of more developed economies, including the United States. However, the crypto market’s inherent instability, marked by extreme price fluctuations, raises concerns about the potential risks to investors, particularly the estimated four million Kenyans, primarily young and small traders, involved in the trade.
The bill’s progression through the legislative process signals a growing recognition of the importance of cryptocurrencies in Kenya’s economy. With this legislation, the government aims to protect traders from potential losses and ensure a stable and secure environment for digital currency transactions. The bill also considers the environmental impact of digital currency generation and crypto mining, reflecting a holistic approach to this new financial frontier.
The endorsement of this bill by the parliamentary committee marks a crucial step towards establishing a legal framework for the cryptocurrency industry in Kenya. If passed, this legislation will bring much-needed clarity and security to both traders and investors. It also positions the country as a frontrunner in the adoption of digital currencies in Africa, following the examples of South Africa and Nigeria.
The bill also aims at safeguarding the country against financial crimes, such as money laundering and terrorism financing, associated with the anonymous nature of cryptocurrency transactions.
