African tax authorities, particularly in Kenya and South Africa, are focusing on cryptocurrency users to address tax evasion stemming from the anonymity and lack of regulation associated with digital assets. The Kenya Revenue Authority plans to implement a digital tax system for tracking transactions, while the South African Revenue Service seeks compliance from the approximately 5.8 million citizens reportedly owning cryptocurrencies. Both agencies aim to bolster tax revenues and ease the compliance burden on law-abiding taxpayers.
Tax authorities across Africa are intensifying their focus on cryptocurrency users as they seek to address tax evasion linked to these borderless and less regulated digital assets. The steadily increasing popularity of cryptocurrencies on the continent, marked by a surge in ownership and transactions, has prompted authorities to consider these assets as viable sources for bolstering tax revenues. The Kenya Revenue Authority (KRA) has actively undertaken measures to recognize digital assets as taxable income. In light of recurring failures to meet revenue collection targets, KRA announced plans to implement a new digital tax system aimed at monitoring cryptocurrency transactions, which have largely evaded taxes due to their inherent anonymity and regulatory ambiguities. Despite currently operating without stringent regulatory oversight from bodies such as the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA), earnings accrued from cryptocurrency activities are taxable under Section 3 of the Income Tax Act. KRA indicated that the deficiency of a dependable taxation system for these digital transactions has led to significant revenue losses for the government. Between 2021 and 2022, Kenyans reportedly transacted approximately Sh2.4 trillion—a figure representing roughly 20 percent of the nation’s Gross Domestic Product—without incurring any taxation. As of 2021, the number of cryptocurrency owners in Kenya surged by more than 187 percent, escalating from 253,000 to roughly 729,200 users, according to Statista. This growth indicates that an increasing volume of capital circulates within the country’s cryptocurrency market, prompting KRA to consider tax collection from this sector as a strategic approach to remedy revenue shortfalls experienced in the past two fiscal years. Similarly, the South African Revenue Service (SARS) has begun instructing cryptocurrency holders to report their digital holdings when filing tax returns. In a recent statement, SARS Commissioner Edward Kieswetter emphasized the agency’s technological advancements, which will enhance its capability to identify individuals who fail to declare their cryptocurrency assets. He asserted that it is estimated that at least 5.8 million South Africans possess cryptocurrencies, yet a mere fraction of these individuals report such assets in their tax declarations. Mr. Kieswetter stated, “Let all know that technology has enhanced Sars’ ability to root out non-compliant taxpayers, and the Sars will pursue all without fear, favour or prejudice.” The initiative to monitor cryptocurrency users aims to broaden the tax base, consequently easing the tax burden on compliant individuals. He expressed that tax evaders unfairly complicate compliance for responsible taxpayers, disproportionately impacting vulnerable populations by restricting the government’s ability to provide essential social benefits.
In recent years, the rise of cryptocurrency has gained significant traction across the African continent, prompting governments to explore the implications of digital currencies for taxation purposes. As cryptocurrencies operate without physical borders and substantial regulatory oversight, they pose unique challenges for tax authorities, particularly with respect to tracking transactions and collecting tax revenues. Both Kenya and South Africa are grappling with the need to incorporate cryptocurrencies into their tax frameworks, primarily to address substantial revenue losses and to ensure equitable compliance among taxpayers. The growing cryptocurrency user base in these countries has further underscored the urgency for tax agencies to adapt their approaches and technology for effective enforcement. In Kenya, the increasing volume of cryptocurrency transactions has caught the attention of the KRA as they have fallen short of revenue collection targets. Likewise, SARS in South Africa has acknowledged the need to overhaul its strategies to encompass the growing number of individuals engaging in cryptocurrency activities. Both authorities are recognizing that failure to effectively tax this sector not only affects government revenue but also exacerbates the burden on compliant taxpayers who are fulfilling their obligations.
In summary, tax authorities in Kenya and South Africa are taking essential steps to regulate the cryptocurrency sector and mitigate tax evasion related to digital assets. The strategies being implemented, such as the introduction of advanced tracking technologies and the establishment of dedicated tax systems, are reflective of a broader intent to enhance compliance and capture previously untaxed revenues. As cryptocurrency adoption continues to proliferate, it is imperative for these jurisdictions to develop robust frameworks that ensure fair tax practices while fostering an environment for responsible digital asset ownership.
Original Source: www.zawya.com
