The Kenya Revenue Authority (KRA) is set to introduce a new tax system designed to monitor cryptocurrency transactions in real-time.

This move is part of the tax authority's broader effort to tap into the country's growing cryptocurrency market and curb tax evasion.

Cryptocurrency, a digital currency secured by cryptography and operating on decentralized networks, has gained popularity in Kenya.

While the sector remains unregulated by authorities like the Central Bank of Kenya and the Capital Markets Authority, the earnings from cryptocurrency transactions are subject to taxation under Kenyan law.

"Though the sector remains unregulated by reporting authorities like the Central Bank of Kenya and the Capital Markets Authority, the earnings from the sector are legally taxable as per Section 3 of the Income Tax Act," the KRA stated.

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"The lack of a robust system to collect taxes on cryptocurrency transactions has resulted in a significant loss of revenue for the government."

The KRA estimates that Kenya's cryptocurrency market transacted approximately Sh2.4 trillion between 2021 and 2022, representing a significant portion of the country's gross domestic product (GDP).

The lack of a robust system to collect taxes on these transactions has resulted in a substantial loss of revenue for the government.

The new tax system will integrate with cryptocurrency exchanges and marketplaces to track and record transaction details such as date, time, type, and value.

This will enable the KRA to identify and pursue tax evaders and criminals operating within the sector.

Cryptocurrency has been used for various purposes, including savings preservation, international payments, and remittances.

Its decentralized nature offers a convenient way to transfer funds directly between parties globally, without the need for traditional banking intermediaries.

However, the decentralized nature of cryptocurrencies has also made them susceptible to illegal activities like theft, fraud, and money laundering.

Additionally, the market is highly volatile, requiring investors to closely monitor price fluctuations.

The government is considering legislation to introduce taxation on these activities to address these concerns and ensure that cryptocurrency transactions contribute to the Kenyan economy.

The Capital Markets (Amendment) Bill, 2023, seeks to amend the Capital Markets Act to include digital currency within the definition of securities.

If passed, the KRA would impose capital gains tax on exchanges and excise duty on transactions.

The National Assembly finance committee has already approved the bill, and it is currently under consideration by Parliament.

The implementation of this legislation, along with the introduction of the new tax system, could significantly enhance the KRA's ability to collect tax revenue from the cryptocurrency sector.