Kenya achieved tremendous success in taxing the cryptocurrency market in the 2023-2024 financial year as KRA collected over 10 billion shillings or $77.5 million from 384 cryptocurrency traders. KRA has been stretching its tax reach by exploiting the growing crypto market as a significant source of revenue. This is proof that the government intends to capitalize on the taxation of emerging digital assets, which is among the most significant developments related to Kenya’s fiscal plan.
Kenya Eyes More Than $465 Million in Crypto Tax Revenue
Looking forward, Kenya’s tax agency has set very high targets in anticipation of raking in $465 million alone from cryptocurrency traders. The new target falls under the five-year tax strategy from Kenya and one that will raise $158.8 billion across sectors. Anthony Mwaura, KRA’s head, published this target at the recent taxpayers’ appreciation event, where he stated that the country’s fiscal future is set to be dominated significantly by the cryptocurrency industry.
Although, Cryptocurrency is still one of the sectors with high potential in the collection of taxes due to speedy growth and adoption within the country. Surprisingly, Kenya features as one of Africa’s big markets of cryptocurrency, yet the country has faced tremendous challenges in tax revenue capture from a very decentralized and unregulated industry.
KRA Unveils New Real-Time System
The Kenyan Revenue Authority strongly advocates for the implementation of the real-time tax system, integrated with exchanges for cryptocurrency. This system will be capturing real-time transaction data from value, and frequency of trades that are conducted on the exchanges. Its advanced technologies signal a significant shift in kenya’s strategy to capitalize on the burgeoning crypto market. Establishing a direct link with crypto platforms could help some of the existing barriers over the KRA in tracking digital currency effectively.
This would mean that the KRA would be proactive and gain insight into the volume and patterns of crypto traders. This would further mean that the government can trace earnings accurately and ensure tax laws are followed. According to Mwaura, this could be further enhanced with an agreement with the Central Bank of Kenya (CBK).
Challenges in Taxing Cryptocurrency in Kenya
While Kenya features among the biggest markets for cryptocurrencies in the continent. It has not been able to raise a significant amount of taxes from this sector. Several reasons make it impossible for KRA to implement tax compliance among crypto traders, which include, Lack of a Comprehensive Legal Framework, Low Public Awareness, and Cryptocurrency Volatility.
The Treasury in Kenya presented itself to the challenges by introducing a 1.5% digital tax on revenue made by cryptocurrency exchanges at the start of 2023. This move is aimed at ensuring that at least part of the revenue made in the country’s crypto market can be contributed toward the national budget.
To reduce the difficulties that come with the collection of taxes from an emerging and quite complex industry, the KRA is embracing advanced technological tools. The agency, according to KRA Commissioner General Mr. Wattanga, is investing in machine learning, artificial intelligence, and data analytics to improve the surveillance capacity to monitor, track, and collect taxes from cryptocurrency traders.
Machine learning algorithms that the KRA will utilize in reviewing transaction data can identify patterns possibly conned with tax evasion schemes. This will help the KRA use artificial intelligence to facilitate automation in data collection and analysis so that it can manage huge volumes of cryptocurrency transaction data. More importantly, it will help the KRA analyze trader behaviour over time and allow for better tax policy-setting and tax enforcement mechanisms.
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