The adoption of cryptocurrencies in Africa is one of the industry’s crowning achievements. What started as a shaky trend in 2019 has continued, with more African countries embracing digital currencies. This growth in adoption has led to calls for improved regulation. In Kenya, the government appears to be moving forward with a tax initiative.
Encompassing Tax Rates for All
In August, the Kenya Revenue Authority (KRA) announced that it had published new rules for “digital marketplaces,” which will include clearer tax rates for companies operating in its crypto space. As local news medium Bitcoinke reported at the time, the rules included a tax rate of 1.5 percent on gross transaction value that would be imposed on exchanges and others.
However, the rules were quite vague. Like the Travel Rule from the United States Internal Revenue Service (IRS) last October, it had vague definitions on key terms, making it confusing to understand if some industry players will also have to deal with the new taxes.
Providing more clarity, Nixon Omondi, a tax expert at the KRA, confirmed to Bitcoinke that the tax rate will apply to all crypto service providers in the country.
“As the law is, any person who will be offering a digital service – crypto is digital, the platform is digital, the acquisition process is digital, the process of payment is digital – in that respect, DST will be applicable on cryptocurrencies,” Omondi confirmed.
Omondi added that the tax rate applies to both local and foreign entities. However, local firms can claim their taxes at the end of the year since they will also have to pay other taxes in accordance with the country’s laws. Foreign entities, on the other hand, will have to remit their taxes monthly.
Nigerian SEC Acknowledges Crypto Regulation
Kenya is one of the few African countries that have made waves in terms of crypto adoption. In Chainalysis’ Crypto Adoption Index of 2020, it ranks top in Africa and fifth in the world.
However, the country isn’t the only one to make progress on the continent’s regulatory landscape. Nigeria – another country that features in the top ten on Chainalysis’ rankings, recently had some development with regulation as its securities regulator formally recognized digital assets.
Last month, the Securities and Exchange Commission published an official document where it recognized the prevalence of cryptocurrencies in the country. It acknowledged the need for oversight, explaining that most people use cryptocurrencies for investments.
“Virtual crypto assets are securities, unless proven otherwise. The burden of proving that the crypto assets proposed to be offered are not securities and therefore not under the jurisdiction of the SEC, is placed on the issuer or sponsor of the said assets,” the statement said in part.
The SEC added that all companies would need to register and approve their digital assets before offering. Firms dealing with Initial Coin Offerings (IOCs), Security Token Offerings (STOs), and Digital Asset Token Offerings (DATOs) will also have to register at least three months before their token launch dates.
In addition, the SEC would classify utility tokens and regular cryptocurrencies as commodities. The agency also assumed oversight of utility token transaction and spot trading, while crypto-based derivatives and investment funds will be classified as “specified investments.” As for security tokens, they will be classified as securities.