Experts discuss tax compliance challenges in cryptocurrency sector at a Nairobi meet

In a bid to address the complexities of tax compliance in the growing digital asset economy, key stakeholders gathered at the Digital Asset Tax Roundtable in Nairobi to discuss emerging tax regulations in the cryptocurrency sector.

This sector continues to mushroom in value with studies by blockchain analysis firms, such as Chainalysis, estimating that at least four million Kenyans own cryptocurrencies.

Further, between 2021 and 2022, Kenya’s cryptocurrency market transacted about Sh2.4 trillion, representing nearly 20 per cent of the country’s GDP. It is expected to bust the Sh5 trillion ceiling by the end of 2025.

The gathering, hosted by the Virtual Asset Chamber of Commerce, in partnership with Chasing Mavericks, attracted representatives from the Kenya Revenue Authority (KRA) and various industry players, all eager to navigate the complexities of tax obligations in this rapidly evolving field.

Policy and Regulatory Engagement Lead at the Virtual Asset Chamber S.A. Kakai highlighted the recently implemented three per cent tax on cryptocurrency transactions, which took effect on September 1, 2023.

He emphasised the urgent need for collaboration between businesses and regulators, underscoring the importance of creating an environment where companies can thrive despite these tax obligations.

Kakai voiced his concerns regarding the existing legal frameworks and broader tax policies, advocating for a thorough evaluation of the currently undefined implementation processes.

“It’s vital that these tax requirements do not hinder businesses,” he asserted, pointing out several challenges that have yet to be fully articulated.

KRA’s Digital Economy Tax Office Manager, Nixon Omondi, provided a comprehensive overview of the tax regulations introduced under Section 12 of the Income Tax Act.

He revisited the 2021 Digital Service Tax (DST), originally aimed at non-resident digital companies, has now expanded to include resident and non-resident entities engaged in digital asset transactions.

“The law mandates that these entities are subject to taxation,” Omondi explained, clarifying the legal basis for taxing activities related to digital assets.

However, he acknowledged the substantial compliance challenges that businesses encounter, particularly with tracking daily transactions within the strict five-day payment window.

Omondi highlighted KRA’s efforts to introduce automated solutions designed to ease this compliance burden, stating, “Facilitating early tax payments can significantly improve compliance.”

He noted that advancements in technology could help close the gap related to tax evasion in the digital asset sector and mentioned the potential impact of a new Crypto Reporting Framework aimed at streamlining compliance processes.

He elaborated on KRA’s strategy to collaborate with cryptocurrency exchanges, suggesting that Advance Pricing Agreements (APAs) could be integrated into the tax collection framework.

He encouraged exchange companies to engage with KRA to clarify their preferred approaches to tax compliance.

“Once the three per cent Digital Assets Tax is paid, that becomes your final tax obligation,” he affirmed while noting that interpretations of the law could still be challenged until a conclusive ruling is established.

Country Launch Specialist at Luno Apollo Sande voiced the need for ongoing cooperation between the cryptocurrency industry and regulatory bodies.

“For the African crypto industry to flourish, it’s essential that we actively engage with regulators. This collaboration is key to creating an environment that enables cryptocurrency to fulfil its potential for financial inclusion and economic empowerment,” he remarked, emphasizing the importance of proactive dialogue.

Chasing Mavericks and co-convener of the Digital Assets Stakeholders Forum CEO Sheila Waswa echoed the call for collaborative efforts between government agencies and blockchain innovators.

“By uniting our efforts, we can ensure that this technology thrives in a well-regulated environment, balancing innovation with compliance,” she stated, highlighting the significance of a supportive regulatory framework.

The stakeholders further reached a consensus on the necessity for continued dialogue between the Web3 community and KRA.

The parties agreed that increased engagement, particularly with the National Treasury is crucial for refining tax policies affecting digital assets. The idea of forming a dedicated working group was also discussed, focusing on tackling the challenges raised during the discussions.