The war against the crypto market is no longer limited to the United States. Other governments around the world have also embarked on the same quest, notably the Kenyan government. Indeed, the idea to tax crypto traders in the East African country is being driven by a parliamentary committee, which alleged that the country’s central bank has been very lackadaisical in regulating the country’s crypto market.
To remedy this issue, the Kenyan Legislature proposed a new law, the Finance Bill 2023, which was recently passed and signed into law, which could lead to the taxation of 4 million crypto traders. The bill imposes a 20% tax on income earned from crypto trading. This is expected to generate an additional $150 million in tax revenue for the Kenyan government.
The taxation of crypto traders is a controversial issue, with some arguing that it will stifle the growth of the crypto industry in Kenya. Others argue that it is a necessary step to ensure that crypto traders are paying their fair share of taxes. But is taxing the crypto market fair?
Whether one believes in cryptocurrency or not, taxing the crypto market is not a fair approach for government to attempt to generate revenue. At the end of the day, crypto traders take a massive risk in investing in a very volatile market, since the price of cryptocurrencies is based on market forces. Thus, the risk of losing everything is more prominent. For the traders who make a profit from such a market, they deserve to keep the profits of their trades. Taxing the crypto market could result in double taxation, as capital gains taxes may already be applied when cryptocurrencies are converted into fiat currencies.
The Kenyan government has said that it is committed to regulating the crypto industry and that the taxation of crypto traders is part of this effort. The Kenyan government is also working on developing a regulatory framework for cryptocurrencies.
The taxation of crypto traders is likely to have a significant impact on the Kenyan crypto industry. It is unclear how many crypto traders will choose to continue trading in Kenya once the tax is implemented. However, it is likely that the tax will lead to a decrease in trading volume and a decline in the overall value of the Kenyan crypto market.
The real reason the Kenyan government seeks to enforce a tax law on the crypto market is not because it is so concerned with transparency and the welfare of consumers, it’s because it seeks to reduce its debt burden. The Kenyan government can no longer borrow at the pace it used to because excessive borrowing skyrocketed its debt-to-GDP ratio and made the country overleveraged. Thus, the Kenyan government has been seeking to generate tax revenue wherever it can to offload the national debt, and repay its loan to the IMF.
What would be the impact of such a tax law on the crypto market? First, implementing a tax law could discourage individuals and businesses from engaging in crypto transactions, potentially slowing down the growth of the Kenyan crypto industry. This could hinder innovation and limit the opportunities for economic growth and technological advancement associated with cryptocurrencies. Second, cryptocurrency users value their privacy, and some may be hesitant to use exchanges or platforms that require reporting their transactions to tax authorities. This could lead to resistance from crypto users and potentially drive some trading activity to unregulated or offshore platforms.
While a tax law on the Kenyan crypto market could generate additional revenue for the government on the one hand, it is crucial to carefully consider the potential negative impacts on the industry's growth, user privacy, and enforcement challenges, on the other hand.