Kenya has set in motion plans to regulate and tax the fast-expanding cryptocurrency industry, a development that will result in about 4mn Kenyans being subjected to taxation.

Parliament’s Finance and National Planning Committee has approved the publication of the Capital Markets (Amendment) Bill, 2023, which seeks to introduce taxation of crypto exchanges and digital wallets, and imposes transaction taxes akin to excise duty charged on bank transactions.

Media outlet Business Daily reported that Parliament’s decision to proceed with the bill came after lawmakers accused the Central Bank of Kenya (CBK) of dragging its feet on regulating the industry.

Among the proposals is for Kenyans to pay capital gains for the increased market value of the crypto when they sell or use the digital currencies in a transaction.

“This is a very critical law that will guard our country against proceeds of crime and terrorism financing. Cryptocurrencies are already being traded by millions of Kenyans yet we have no law to govern it. We approve this Bill for publication,” Business Daily quoted Kimani Kuria, Finance and National Planning Committee chairman, as saying.

The proposed law provides for specific provisions to govern digital currency transactions, its creation through crypto mining, provide regulation around the trading of digital currencies, provide for its taxation, ownership, and provide for promotion of innovation in the sector.

“We should be on the frontline in adopting cryptocurrencies like we did with the M-Pesa [Safaricom’s money transfer service]. Right now South Africa and Nigeria have legalised cryptocurrencies, yet our Central Bank is dragging its feet. We need to protect our traders from potential losses,” Business Daily quoted Abraham Kirwa, the sponsor of the bill, as saying.

In specific terms, the proposed law wants to bring cryptocurrency traders into the taxation bracket by requiring persons who own or deal in digital currency to provide the Capital Markets Authority (CMA) with specific information for taxation.

Those owning or dealing in digital currency will be required to furnish the regulator with information regarding the amount of proceeds from the transaction, any costs related to the transaction and the amount of any gain or loss on the transaction.

Kenya has the largest share of its population with cryptocurrencies in Africa, with a 2022 report by the United Nations Conference on Trade and Development showing that 8.5% of the population or 4.25mn people own cryptocurrencies.