African Tax Authorities Intensify Focus on Cryptocurrency Users to Curb Tax Evasion

Tax authorities in Kenya and South Africa are intensifying efforts to regulate cryptocurrency transactions in order to mitigate tax evasion. The Kenya Revenue Authority plans a new digital tax system to capture untaxed crypto transactions, while the South African Revenue Service has upgraded its technology to track non-compliant taxpayers. Both authorities are underscoring the need for cryptocurrency holders to declare their assets to ensure fair taxation and bolster public revenue.

Tax authorities across Africa are intensifying their focus on cryptocurrency users in an effort to identify and curb tax evasion associated with these borderless and largely unregulated digital assets. As the popularity of cryptocurrencies rises within the continent, officials are recognizing the potential of these digital currencies as a means to enhance tax revenues. The Kenya Revenue Authority (KRA) is actively exploring the taxation of digital assets, aiming to address persistent revenue shortfalls exacerbated by the anonymous nature of cryptocurrency transactions. In a recent announcement, the KRA revealed its plans to implement a new digital tax system designed to encompass crypto trade transactions, which have largely evaded taxation up to this point. The agency underscored that despite the absence of formal regulations from entities such as the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA), earnings derived from cryptocurrencies are indeed subject to taxation under Section 3 of the Income Tax Act. To illustrate the magnitude of potential tax revenue loss, the KRA noted that from 2021 to 2022, Kenyans engaged in crypto transactions totaling Sh2.4 trillion, constituting approximately 20% of the nation’s Gross Domestic Product, with no taxes collected from these activities. The rise of cryptocurrency ownership in Kenya has been significant, with an increase of over 187% since 2021, climbing from 253,000 to an estimated 729,200 users, as reported by data analytics firm Statista. Consequently, the KRA is eager to harness this burgeoning sector to narrow the gap left by unmet revenue targets. Similarly, the South African Revenue Service (SARS) has issued warnings to cryptocurrency holders regarding the necessity of declaring their assets in tax returns, bolstered by upgraded technology intended to enhance the agency’s tracking capabilities. Commissioner Edward Kieswetter stated that while it is estimated that approximately 5.8 million South Africans own cryptocurrencies, a minimal percentage are actually reporting these holdings in their tax submissions. In his remarks, he emphasized the capabilities of SARS to identify non-compliant taxpayers, declaring, “… technology has enhanced SARS’ ability to root out non-compliant taxpayers, and the SARS will pursue all without fear, favour, or prejudice.” The agency’s initiatives targeting cryptocurrency users aim to broaden the tax base and alleviate the tax burden on compliant individuals. Commissioner Kieswetter expressed concern that tax evasion complicates the compliance responsibilities of honest taxpayers, thus disproportionately affecting vulnerable populations by constraining the government’s capacity to provide essential social services.

The increasing adoption of cryptocurrencies in Africa presents both opportunities and challenges for tax authorities. As the continent witnesses a significant rise in digital asset ownership, governments are recognizing the necessity of regulating this sector to ensure tax compliance. The actions taken by the KRA and SARS reflect a broader trend in which tax authorities are leveraging technology and enhanced tracking systems to monitor financial transactions and enforce compliance, amid concerns over loss of tax revenue and the fairness of tax burdens among citizens.

The proactive measures undertaken by the Kenya Revenue Authority and South African Revenue Service highlight a growing recognition of the need to integrate cryptocurrencies into the formal tax system. As regulatory frameworks lag behind technological advancements in the financial sector, it becomes increasingly critical for tax authorities to adapt and implement strategies that enable them to effectively monitor and tax digital asset transactions. The outcome of these efforts may significantly alter the landscape of tax compliance within African nations, fostering equity among taxpayers and enhancing public revenue systems.

Original Source: www.theeastafrican.co.ke