KENYA-CRYPTO-TAX: UN Urges Country to Impose Tax on Sector

KENYA-CRYPTO-TAX: UN Urges Country to Impose Tax on Sector
KENYA-CRYPTO-TAX: UN Urges Country to Impose Tax on Sector
  • To reduce exposure to the implosion in the cryptocurrency market and huge risks of financial instability, the United Nations (UN) has urged Kenya and other developing countries to regulate and tax the Crypto industry.

The Kenya-Crypto-Tax discussion has received a renewed drive as a policy brief by the United Nations Conference on Trade and Development (UNCTAD) urges the country to impose a cryptocurrency tax.

The UN further urges Kenya to enforce mandatory registration for crypto exchanges and digital wallets, charging entry fees and imposing tax transactions similar to excise duty charged on bank transactions.

UN’s policy is drawn based on the negative impact the Crypto sector is having on the generation of tax revenue in the East African nation due to its unregulated status.

The Kenya-Crypto-Tax: More on UN’s Policy

UNCTAD in this report mentioned that Crypto exchanges play a vital role in promoting their wider distribution.

The international organization also wants to barricade banks and other financial institutions from holding stablecoins and cryptocurrencies or offering related products to clients. It enjoined the government to place a ban on the advertisement of crypto exchanges and digital wallets in public spaces and on social media to restrain the permeation of cryptos.

For clarity into UNCTAD’s policy, crypto exchanges are online platforms run by companies where investors buy and sell digital tokens such as Bitcoin, Ethereum, and Tether among other coins.

The Kenya-Crypto-Tax: Cryptocurrency in Kenya

A report from the United Nations (UN), Kenya has the largest share of its population with cryptocurrencies in the whole of Africa. UNCTAD states that 8.5% of the country’s population or 4.25 million people own cryptocurrencies.

As a result of this, Kenya is placed ahead of developed economies such as the United States, which is ranked sixth with 8.3 percent of its population owning digital currencies.

Kenya has the largest share of its population with cryptocurrencies in the whole of Africa.
Kenya has the largest share of its population with cryptocurrencies in the whole of Africa.

International Ranking

War-torn Ukraine is ranked number one, with a 12.7 percent share of its population with cryptocurrencies, followed by Russia (11.9 percent), Venezuela (10.3 percent), and Singapore (9.4 percent).

South Africa and Nigeria are ranked 8th and 9th globally, with 7.1 percent and 6.3 percent of their populations possessing digital currencies respectively.

In November last year, many investors pulled their money from the Crypto market due to its unstable nature, and this has negatively affected the estimated four million Kenyans, mainly young and small traders, who in recent years have swarmed to cryptocurrencies hoping to get quick returns, despite warnings from regulators such as the Central Bank of Kenya (CBK) that the growing assets can be high-risk.

UNCTAD mentioned that the growing adoption of digital currencies in Kenya is due to low fees charged by crypto exchanges, speed in sending remittances, and Internet access.

The report stated that the unregulated status of the sector makes it almost impossible to determine the value of digital assets held by the mostly tech-savvy Kenyans, but the amount could be as much as billions of shillings.

The Kenya-Crypto-Tax: Challenges of Cryptocurrency Taxation

Since Cryptocurrencies became popular, governments all over the world have been discussing how to design a tax system and ensure proper regulation of transactions in digital assets.

One of the challenges surrounding cryptocurrency taxation is that a government has to decide whether it wants to maintain the neutrality of its tax system by enforcing the right kind of tax at the right time, or if it wishes to discourage the use of cryptocurrencies by imposing unusually high tax burdens.

While some countries treat cryptocurrencies the same way they do other forms of foreign exchange, others treat them as tradable assets for tax purposes.

For example, in Thailand, crypto taxation wasn’t a point of interest until a local company announced an Initial Coin Offering (ICO).

Regardless, private companies have begun trading with no knowledge of taxation in this new realm.

In March 2018, the cabinet of Thailand suddenly approved the draft of two emergency decrees, one to regulate transactions, and the other on taxation rules for what the decrees refer to as “digital assets”.

This move surprised the market, successfully putting a stop to new ICOs by imposing both income tax (as well as withholding tax) and value-added tax (VAT) on transactions.

The draft divides “digital assets” into two categories:

i. Cryptocurrency: It defined this as having a value in itself without having to reflect any underlying assets, currencies, or equities. Examples include Bitcoin and Ethereum which can be used to pay for goods or services.

ii. Digital tokens: These give a  holder the rights to exchange for goods, services, or other rights as agreed by the issuer of an ICO. Their value could reflect the underlying assets or the business projects (utility tokens), and sometimes represent the value of shares in an enterprise (security tokens).

Other Continental Updates

The draft also suggests two new classes of taxable income from digital assets:

i. Profit distribution or other profits earned.

ii. Gains from the disposal of digital assets, on which 15% withholding tax will be imposed.

However, there are still certain issues such as how to determine the taxing jurisdiction of digital assets sent offshore, computing gains from the sale of digital assets, and also how to monitor tax costs for withholding tax purposes.

Since 2014, the United States of America (USA) has believed that the mining of cryptocurrencies is a derivation of taxable income in an amount equal to their fair market value.

Japan, on the other hand, announced in 2017 that mined cryptocurrencies must be treated as outright income for tax purposes.

Visit our Twitter page for more Africa tax updates


DISCLAIMER

The information contained herein is general and is not intended, and should not be taken, as legal, accounting or tax advice provided by Taxmobile.Online Inc to the reader. This information remains strictly the opinion of Taxmobile.Online Inc.

The reader also is cautioned that this material may not apply to, or suitable for, the reader’s specific circumstances or needs, and may require consideration of other tax factors if any action is to be contemplated. The reader should contact his or her Tax Advisers before taking any action based on this information.

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Taxmobile.Online Inc.

Be the first to comment

Leave a Reply

Your email address will not be published.


*