Kenyans with digital assets are watching keenly as MPs begin debate on taxation of cryptocurrencies once the House resumes its sittings.
The Capital Markets (Amendment) Bill, 2023, sponsored by Mosop MP Abraham Kirwa, early last month received the National Assembly's Finance and Planning Committee nod to proceed for a second reading.
A second reading is the stage of the legislative process where the draft bill will be read a second time before the floor of the entire house.
In some instances, a vote is taken in the general outlines of the bill before it is sent to the designated committee for amendments and later forwarded to president for accenting.
The Finance Act, of 2023 had introduced a three percent tax on the amount cryptocurrency holders earn from selling digital assets.
Central Bank of Kenya says that in the new law, Capital Markets Authority (CMA) will be designated as the regulator for crypto assets.
This means the assets will qualify as financial instruments/securities since CMA's primary mandate is to regulate the issuance and trading of financial instruments.
“A person who possesses or deals in digital currency shall provide the Authority with the following information for tax purposes—the amount of proceeds from the transaction, any costs related to the transaction and the amount of any gain or loss on the transaction,” the Bill reads in part.
If successful, Kenya will follow in the footsteps of Nigeria in imposing a tax on digital assets. Kenya was ranked 38 globally and third in Africa in crypto purchased in 2022.
The committee chaired by Molo MP Kimani Kuria approved Kirwa’s proposal to amend the Capital Markets Act, Cap 485 to include digital currencies in the definition of securities.
The proposed amendment provides for specific provisions to govern the digital currency transactions in Kenya, its creation through crypto mining, provide regulation around trading of digital currencies, provide for its taxation, ownership and provide for promotion of innovation in the sector.
The new tax will also affect those trading in non-fungible tokens (NFTs). This is a unique digital identifier that is recorded on a blockchain, and is used to certify ownership and authenticity. It cannot be copied, substituted, or subdivided.
Digital asset, according to the Finance Act, is anything of values that is not tangible and include cryptocurrencies, token code, and number held in digital form and generated through cryptographics.
“This is a very critical law that will guard our country against proceeds of crime and terrorism financing. Cryptocurrencies are already being traded by millions of Kenyans yet we have no law to govern it. We approve this Bill for publication,” said Kuria during the pre-publication scrutiny of the proposal.
The new tax was to take effect from September 1, but court cases by Blockchain Association of Kenya (BAK) and lack of a clear legal framework to tax the currencies delayed the implementation.