Tax agencies across Africa are targeting cryptocurrency holders in a bid to identify tax evaders using digital assets. These digital currencies’ borderless nature and minimal regulation have made them appealing to users but challenging for authorities to monitor. With the rise of crypto transactions on the continent, tax bodies see an opportunity for additional revenue.

Kenya Revenue Authority’s new digital tax push

Among the agencies aiming to capture untaxed crypto transactions is the Kenya Revenue Authority (KRA). Facing consistent revenue shortfalls, the KRA recently announced plans to procure a digital tax system to track cryptocurrency trades. These transactions have often remained untaxed due to their anonymity and lack of specific regulatory frameworks.

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

The KRA estimates that between 2021 and 2022, cryptocurrency transactions in Kenya amounted to KSh 2.4 trillion, roughly 20 percent of the country’s Gross Domestic Product. These transactions were not subject to taxation, highlighting a significant gap in the revenue collection system.

The number of crypto users in Kenya has surged by over 187 percent since 2021, rising from approximately 253,000 to around 729,200 users, according to Statista. This growth in digital currency usage has caught the KRA’s attention as a potential means to offset revenue deficits after two years of missed targets.

South Africa’s warning to non-compliant crypto holders

South Africa’s tax authority, the South African Revenue Service (SARS), has also tightened its focus on cryptocurrency users. Last week, SARS issued a warning to crypto holders, urging them to include their digital assets in their tax declarations. The agency has upgraded its technological capabilities to track non-compliant individuals.

SARS Commissioner Edward Kieswetter emphasised the need for transparency, noting that while around 5.8 million South Africans are estimated to own cryptocurrencies, only a small fraction report their holdings in tax filings. 

“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,” Kieswetter said.

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Expanding the tax base for social impact

SARS’s move to include cryptocurrency transactions in the tax bracket aims to ease the tax burden on compliant citizens. “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,” Kieswetter added.

The actions by KRA and SARS reflect a broader effort across Africa to close tax loopholes in the fast-growing cryptocurrency sector. It is a crucial opportunity to stabilise public finances and ensure a more equitable distribution of the tax burden.