Tax agencies in Kenya and South Africa are intensifying efforts to tax cryptocurrency transactions as ownership in digital assets rises. The Kenya Revenue Authority plans to implement a new digital tax system to capture transactions, while the South Africa Revenue Service is enhancing technology to detect undeclared crypto holdings. Both nations aim to plug tax gaps and ensure compliance among cryptocurrency users, noting significant revenue losses due to lack of regulation.
Tax authorities across the African continent are intensifying their scrutiny of cryptocurrency users in a concerted effort to identify and address tax evasion associated with these digital assets. The borderless nature of cryptocurrencies, along with their currently unregulated status, presents challenges for fiscal authorities seeking to recover potential tax revenues. Among these authorities, the Kenya Revenue Authority (KRA) is actively seeking to harness the burgeoning cryptocurrency market as a source of additional tax income. In a period characterized by persistent failures to meet revenue targets, KRA has announced plans to implement a new digital tax system aimed at capturing transactions in the largely untaxed cryptocurrency sector. The KRA stated that, despite the lack of regulation from bodies such as the Central Bank of Kenya and the Capital Markets Authority, earnings derived from cryptocurrency transactions are nonetheless taxable under Section 3 of the Income Tax Act. The agency highlighted that the absence of a rigorous system for the collection of taxes on such transactions has resulted in substantial revenue losses for the government. Within the timeframe of 2021 to 2022, Kenyan citizens reportedly conducted transactions worth Sh2.4 trillion in cryptocurrencies, which represents approximately 20 percent of the nation’s Gross Domestic Product, all of which went untaxed. Statistics indicate that the number of cryptocurrency owners in Kenya has surged by over 187 percent since 2021, escalating from 253,000 users to an estimated 729,200 users currently. In light of this growth, the KRA perceives a significant opportunity to fill revenue shortfalls by tapping into this rapidly evolving sector. Similarly, the South Africa Revenue Service (SARS) has issued warnings to cryptocurrency holders regarding their obligation to declare digital assets on tax returns. SARS Commissioner Edward Kieswetter announced that the agency has enhanced its technological capabilities to monitor crypto transactions more effectively. Despite estimates suggesting that approximately 5.8 million South Africans own cryptocurrencies, few report them during tax filings, resulting in a considerable number evading taxes on their gains. Mr. Kieswetter remarked, “Let all know that technology has enhanced SARS’ ability to root out non-compliant taxpayers, and SARS will pursue all without fear, favour or prejudice.” He elucidated that expanding the tax base to encompass cryptocurrency users aims to alleviate the tax burden placed on compliant taxpayers. By failing to meet their tax obligations, evaders complicate compliance for responsible taxpayers, thereby creating inequities that disproportionately affect vulnerable segments of society and hinder governmental efforts to provide essential social benefits. As tax authorities in Kenya and South Africa sharpen their focus on the cryptocurrency market, the implications for users are profound, potentially impacting the broader regulatory landscape and enforcement mechanisms surrounding digital assets in Africa.
The increase in cryptocurrency transactions across Africa has prompted tax authorities to reevaluate their strategies for revenue collection. In particular, the anonymity and regulatory gaps associated with digital currencies have made it difficult to track tax compliance among individuals and businesses involved in crypto activities. With an increasing number of users and substantial transaction volumes, tax authorities in countries like Kenya and South Africa are recognizing the urgent need to develop systems that address this emerging financial challenge. The push from these authorities indicates a broader trend toward tightening regulations and fostering accountability in the growing cryptocurrency market.
In conclusion, the ongoing efforts by tax authorities in Kenya and South Africa to regulate and tax cryptocurrency transactions underscore a significant shift in the approach towards digital assets. As the number of cryptocurrency users continues to rise dramatically, these agencies are poised to implement systems capable of capturing previously untapped revenue streams. This development not only aims to enhance government revenues but also seeks to ensure fair taxation practices across the board, thus allowing for the distribution of critical social services to those in need.
Original Source: www.theeastafrican.co.ke
