A blockchain advocacy group is advocating for the introduction of a Virtual Assets Service Providers (VASPs) Bill, aiming to bring regulation to the virtual assets industry in a manner similar to traditional financial institutions. This development comes in response to revelations that some members of the industry have not been remitting taxes to the Kenya Revenue Authority (KRA) due to existing legal ambiguities.
If approved, the proposed bill will facilitate the issuance of licenses for Virtual Assets (VAs) to operating firms, establish tax remittance mechanisms, enhance consumer protection, and encourage future innovation in the sector.
During a presentation before the National Assembly’s Finance and National Planning committee, the Blockchain Association of Kenya (BAK) argued that the absence of comprehensive regulations for digital assets has deterred companies from establishing a presence in Kenya, resulting in reduced revenue potential.
“We are advocating for VASPs. This will set the groundwork for a transparent licensing and regulatory framework, enticing companies to invest in Kenya. We can collaborate with entities like the Capital Markets Authority (CMA) to strengthen our ability to manage, audit, and integrate blockchain technology,” explained Allan Kakai, the Legal and Policy Director at BAK, to the Finance Committee led by Kuria Kimani.
In the Finance Act of 2023, a 3% Digital Asset Tax (DAT) was introduced, effective from September 1. However, BAK has expressed opposition to this, citing concerns about double taxation.
The committee learned that since September 1, the association, comprising 20 members, has withheld tax from the Kenya Revenue Authority (KRA) due to existing legal limitations that prevent them from owning bank accounts.
The Finance Act defines digital assets as intangible items of value, including cryptocurrencies, token codes, and digital numbers, which can be exchanged with or without consideration and can be transferred, stored, or exchanged electronically.
DAT, categorized as income tax but imposed on the gross value of the asset rather than gains and profits, necessitates even loss-making service providers to pay the tax. BAK is now advocating for the removal of the DAT.
Consequently, Kuria has instructed the association to collaborate with the parliament to present the official VASPs Bill within the next two months for consideration. If approved, this bill could be incorporated into the Finance Act of 2024, aligning tax measures accordingly.
“Before the end of next year, we need to have a Digital Currency Act and proper legislation in that space. We are losing a lot of money from this sector due to the absence of regulation,” stated Kuria.
Regulating the sector will enable the government to monitor and identify suspicious transactions in compliance with the Anti-Money Laundering and Countering Terrorism Financing (AML/CTF) framework endorsed by President William Ruto last month.
Blockchain analytics firm Chainalysis, which tracks cryptocurrency adoption by country, recently identified at least 20 cryptocurrency service providers suspected of financing terrorism. However, it cautioned that this represents a relatively small fraction of illicit transactions.
The Central Bank of Kenya (CBK) has repeatedly cautioned against cryptocurrencies, citing security concerns. Cryptocurrency has an estimated global value of $1.18 trillion, with Sub-Saharan Africa accounting for 1.7%, and Kenya ranking among the top 20 countries in this regard.
