By John Walubengo.
Last week, the Kenyan Treasury Cabinet Secretary published the Finance Bill 2023 and within it, he stated his intention to tax cryptocurrency transactions. Specifically, it states as follows in clause 10, page 8:
The owner of a platform or the person who facilitates the exchange or transfer of digital asset shall deduct the digital asset tax (at the rate of 3% of the market value) and remit it to the Commissioner.
The technical definition of a digital asset is further given:
anything of value that is not tangible and cryptocurrencies, token codes, number held in digital form and generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration that can be transferred, stored, or exchanged electronically.
This is quite a mouthful but basically describing your regular Bitcoin, Ethereum or other Crypto money that seems to have taken quite some hold in Kenya as well as other parts of the globe.
I am not too concerned about taxing or not taxing Cryptocurrencies.
What I find amusing however is the fact that five or so years ago, the Central Bank of Kenya issued a stern warning in a circular to all local banks and mobile operators not to engage or facilitate the trading of cryptocurrencies.
Indeed, one of the early pioneers in Cryptocurrency trade in Kenya, Bitpesa was affected by this circular and had to shift most of its HQ operations from Nairobi to Lagos.
I believe that the CBK circular has not been withdrawn, and so it looks like the Government of Kenya on the one hand is discouraging Cryptocurrency trading, while on the other it is quietly encouraging and benefiting from it.
Let us avoid mixed policy signaling
Perhaps Treasury, Kenya Revenue Authority, and CBK should meet behind the tent and make up their minds once and for all – what exactly is the government policy towards Cryptocurrencies.
Meanwhile, in a tweet posted recently, Moses Kuria, the CS in charge of Trade and Industry, said that he was headed to some Dubai meeting to discuss the role of Digital Currencies in accelerating the realization of the African Continental Free Trade Area (ACFTA).
Clearly, there is a sense that the Kenya Kwanza administration is willing to take a more open approach to experiment with new fintech solutions than the previous administration was willing to take.
What is not clear is whether the pros and cons of these new proposed fintech solutions and their taxation or otherwise, have been clearly thought through, especially by experimenting and maturing them through the regulatory sandbox at the Capital Market Authority.
A story is told of England in the middle ages … when the taxman decided to raise the tax revenue by taxing households based on the number of windows a house had. Apparently, the rich households had more windows than other households and so it sounded like a good idea to raise some extra funds for the King.
The move was counterproductive since most households sealed off their windows in order to pay less tax and eventually this caused a huge public health problem for the city of London as residents were breathing more stale air and spreading respiratory illness faster than before.
The knee-jerk reactions to raise extra funds can sometimes have unpredictable outcomes.
John Walubengo is an ICT Lecturer and Consultant. @jwalu.