Kenya and South Africa tax authorities target crypto users in bid to net cheats

Tax authorities in Africa are now training their guns on cryptocurrency users, in fresh efforts to net tax evaders relying on the borderless nature of unconventional digital assets and their lack of regulatory oversights.

With the growing prominence of the crypto assets on the continent as ownership and transactions gain momentum, authorities are now paying attention to the digital currencies as a possible source of extra tax revenues.

The Kenya Revenue Authority (KRA) is among the tax agencies that are now looking at the digital assets as a source of additional tax revenue, coming amidst consistent failed revenue targets.

This week, KRA disclosed plans to procure a new digital tax system with the aim of capturing crypto trade transactions, which have mostly been out of the tax bracket due to their anonymity and lack of regulatory scrutiny.

“Though the sector remains unregulated by reporting authorities, i.e. CBK (Central Bank of Kenya) and CMA (Capital Markets Authority), the earnings from the sector are legally taxable as per Section 3 of the Income Tax Act,” the taxman said.

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

KRA estimates that between 2021 and 2022, Kenyans transacted Sh2.4 trillion, which is about 20 percent of the country’s Gross Domestic Product, none of which was taxed.

Since 2021, the number of cryptocurrency owners in Kenya is estimated to have grown by over 187 percent, from 253,000 users to an estimated 729,200 users currently, according to data firm Statista.

With the growth, more money is estimated to be circulating within the crypto industry in the country, and KRA is now seeing potential in tapping the sector to plug revenue gaps after missing its targets for the last two financial years.

The South Africa Revenue Service (Sars), last week also warned crypto holders who don’t declare it in their tax returns to start doing that, claiming it has upgraded its technology and will soon be able to track them down.

Sars commissioner Edward Kieswetter said despite the agency estimating that at least 5.8 million South Africans own cryptocurrencies, only a few declare them in their tax filings, meaning majority don’t pay any taxes on their gains from crypto transactions.

“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,” Mr Kieswetter said.

For Sars, the move on crypto users is meant to expand the tax bracket to reduce the tax burden borne by the compliant taxpayers.

“Those who are evading their responsibility make the burden of compliance difficult for other taxpayers. This is not only unfair to honest taxpayers but also affects the vulnerable in society disproportionately by limiting the state’s ability to deliver social grants and other much-needed social benefits,” he said.

This story originally appeared on The East African.