Kenya and South Africa Intensify Focus on Cryptocurrency Tax Compliance

Tax authorities in Kenya and South Africa are now targeting cryptocurrency users to address tax evasion. The Kenya Revenue Authority plans to implement a digital tax system to track crypto transactions, estimated at Sh2.4 trillion without taxation from 2021 to 2022. In South Africa, SARS is enhancing technology to monitor non-compliant taxpayers, where over 5.8 million individuals reportedly own cryptocurrencies without declaring them for tax purposes. The initiative aims to broaden the tax base and reduce the burden on compliant taxpayers.

Tax authorities across Africa have intensified their scrutiny of cryptocurrency users as part of efforts to combat tax evasion linked to these digital currencies, which benefit from a largely unregulated and borderless environment. The Kenya Revenue Authority (KRA) is at the forefront of this initiative, recognizing the growing significance of cryptocurrencies amid a backdrop of unmet revenue expectations. Recently, KRA announced plans to implement a new digital tax system designed to track cryptocurrency transactions. Currently, such transactions remain largely untaxed due to their inherent anonymity and limited regulatory oversight. The KRA asserts that earnings from cryptocurrency, as stipulated under Section 3 of the Income Tax Act, are taxable despite the absence of a robust collection system. According to KRA estimates, Kenyans engaged in cryptocurrency transactions worth approximately Sh2.4 trillion between 2021 and 2022, an amount equivalent to about 20 percent of the nation’s Gross Domestic Product, all of which went untaxed. As public interest in cryptocurrencies rises, with the number of users increasing by over 187 percent from 253,000 to around 729,200 since 2021, KRA is keen to tap into the potential tax revenue from this growing sector to alleviate its fiscal burdens after failing to meet revenue targets in the past two financial years. In South Africa, the South African Revenue Service (SARS) has similarly initiated measures to monitor cryptocurrency holders who have not reported their holdings in tax returns. SARS Commissioner Edward Kieswetter has indicated that the agency has upgraded its technological capabilities to enhance its ability to track non-compliance among cryptocurrency users. Despite estimates suggesting that approximately 5.8 million South Africans possess cryptocurrencies, very few have declared these assets in their tax filings. Mr. Kieswetter emphasized that the technological advancements enable SARS to effectively identify and enforce compliance among all taxpayers without exception, stating that “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.” The initiative seeks to broaden the tax base and alleviate the tax burden on compliant taxpayers, as non-compliance disproportionately hinders the state’s capacity to provide essential social services and benefits. The increasing focus of tax authorities in Kenya and South Africa on cryptocurrency transactions illustrates a significant shift towards enhanced regulation and oversight of digital assets. This move is primarily aimed at recovering lost tax revenues funnelled through the rapidly expanding cryptocurrency market, as both nations strive to establish a more equitable tax system that supports various social programs.

As cryptocurrencies gain traction in Africa, authorities are increasingly recognizing the potential tax revenue they represent. Both Kenya and South Africa are experiencing a surge in cryptocurrency ownership and transactions, prompting their respective tax authorities to implement strategies to ensure that these digital assets do not escape taxation. By enhancing technological systems to monitor cryptocurrency transactions, these countries aim to broaden their tax bases and address prior failures in revenue collection. This strategic emphasis indicates a growing awareness of the need for regulation in the burgeoning digital asset sector, which has traditionally evaded scrutiny.

The attention being directed towards cryptocurrency users by tax authorities in Kenya and South Africa marks a pivotal shift in addressing tax evasion related to digital assets. Both countries view this sector as a crucial avenue to bolster revenue collections, especially in light of unmet fiscal targets. The initiatives being undertaken by the KRA and SARS reflect a broader trend of increased regulatory oversight in the cryptocurrency landscape, with implications for compliance and the equitable distribution of tax obligations among citizens.

Original Source: www.zawya.com