Tax authorities in Kenya and South Africa are ramping up efforts to monitor and tax cryptocurrency transactions, seeing them as a potential source of tax revenue. The Kenya Revenue Authority plans to adopt new technology to track crypto trades, while South Africa’s tax agency warns users to declare their holdings. Both are addressing the significant gap in tax collection due to the anonymity and unregulated nature of cryptocurrencies.
In Africa, tax authorities are intensifying their focus on cryptocurrency users as part of an effort to combat tax evasion associated with the decentralized and largely unregulated realm of digital assets. Given the increasing popularity of cryptocurrency through expanded ownership and transaction volumes across the continent, the Kenya Revenue Authority (KRA) has particularly noted the potential for additional tax revenue from this sector, which has largely remained untapped due to its inherent anonymity. The KRA has announced intentions to implement a new digital tax system designed to track crypto transactions, which have historically evaded taxation due to a lack of comprehensive oversight by financial regulators such as the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA). According to KRA statements, despite the absence of regulatory frameworks, profits derived from cryptocurrency activities are subject to tax under the Income Tax Act. The authority estimates that an alarming Sh2.4 trillion was transacted in cryptocurrencies between 2021 and 2022, equating to roughly 20% of Kenya’s Gross Domestic Product, none of which has contributed to the tax revenue. Following a significant rise in cryptocurrency ownership, which has surged from 253,000 to approximately 729,200 users since 2021, KRA is keenly aware of the increasing financial flows within this market and sees an opportunity to bridge revenue deficits experienced in recent fiscal years. Similarly, the South African Revenue Service (Sars) has issued a warning to cryptocurrency holders regarding their tax obligations, emphasizing advancements in their technology that will enable the detection of unreported crypto assets. Sars commissioner Edward Kieswetter noted that although around 5.8 million South Africans are believed to own cryptocurrencies, a substantial portion fails to declare them, leading to significant tax losses. “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,” said Mr. Kieswetter. This effort aims to broaden the tax base and relieve compliant taxpayers from the financial burden imposed by those evading their responsibilities. The actions against tax evasion in the crypto sector not only ensure fairness among taxpayers but also enhance the government’s capacity to provide social services and support to the vulnerable population.
The rise of cryptocurrency as a financial asset has created numerous challenges for tax authorities globally, particularly in regions like Africa where regulation is still catching up with the rapid technological advancements in digital finance. As cryptocurrencies become more prevalent, the borderless nature of these digital assets complicates efforts to monitor and tax transactions effectively. Moreover, the anonymity associated with many cryptocurrencies has led to a substantial gap in tax revenue that governments are now seeking to address. The Kenyan and South African tax authorities are now taking steps to leverage technology to track crypto transactions, ensuring compliance and tax contributions from this emerging market segment.
In summary, the recent initiatives undertaken by tax authorities in Kenya and South Africa are significant moves towards incorporating cryptocurrency into the tax framework. The KRA and Sars are not only aiming to reduce tax evasion among cryptocurrency users but also to widen the tax base to alleviate the burden on compliant taxpayers. By enhancing their technological capabilities to monitor cryptocurrency transactions, these authorities are taking proactive steps to secure new revenue streams and ensure tax compliance in a rapidly evolving digital landscape.
Original Source: www.zawya.com
