Kenya’s Cryptocurrency Legislative Landscape Prior to 2024

As of the years leading up to 2024, Kenya’s approach to cryptocurrency regulation was multifaceted, involving various legal frameworks and regulatory bodies. The landscape was marked by the emergence of new legislation alongside existing laws, reflecting Kenya’s evolving stance towards the growing influence of digital currencies.

Regulatory Framework

Kenya’s regulation of cryptocurrencies was primarily guided by three acts:

The National Payments Systems Act (NPSA): Administered by the Central Bank of Kenya (CBK), this act authorized the CBK to oversee and regulate payment systems and service providers. The CBK emphasized the volatility and unregulated nature of cryptocurrencies, advising the public to be cautious, though not prohibiting trading. Moreover, the NPSA empowered the CBK to regulate cryptocurrencies through Kenya’s money remittance regulations, requiring cryptocurrency companies to acquire proper licensing to operate within the country​​.

The Capital Markets Act (CMA): Administered by the Capital Markets Authority, this act played a pivotal role in potentially classifying certain cryptocurrencies as securities. The Kenyan courts applied the Howey test to determine if a cryptocurrency is a security, thus falling under the CMA’s jurisdiction. The CMA suggested forming a working coalition of financial regulators or creating a dedicated agency for cryptocurrency regulation, aiming to increase consistency and uniformity in the regulatory approach​​.

The Kenya Information and Communication Act (KICA): Administered by the Communications Authority, this act also contributed to the regulatory environment, though specific details of its role in cryptocurrency regulation were less emphasized in the available sources.

Taxation

The Kenyan government introduced the “digital service tax” through amendments to the Income Tax Act in November 2019. This tax applied to cryptocurrency transactions, effective from January 1, 2021. The Kenya Revenue Authority (KRA) defined digital marketplaces broadly, encompassing cryptocurrency platforms. Transactions were taxed at a rate of 1.5%, with a formula based on the gross value of the transaction. The KRA planned to create a unique tax agency specifically for regulating cryptocurrency taxes, highlighting its commitment to enforcing this new tax law​​.

Proposed Capital Markets (Amendment) Bill, 2023

A notable development was the endorsement of the Capital Markets (Amendment) Bill, 2023, by the National Assembly’s Finance and National Planning Committee. The bill sought to bring digital currencies under the definition of securities in the Capital Markets Act, Cap 485, introducing more stringent oversight and taxation mechanisms. It proposed taxing crypto exchanges and digital wallets, and imposing transaction taxes similar to bank transactions. The bill required Kenyan traders to pay capital gains to the KRA and mandated detailed reporting for taxation purposes​​.

This bill reflected Kenya’s proactive stance in regulating a market marked by significant volatility and the involvement of a substantial portion of its population in cryptocurrency trading. The government aimed to protect traders and ensure a stable and secure environment for digital currency transactions. Additionally, the bill addressed concerns about financial crimes, such as money laundering and terrorism financing, associated with the anonymous nature of cryptocurrency transactions​​.

Conclusion

As of the years leading up to 2024, Kenya’s legislative landscape for cryptocurrencies was characterized by an evolving regulatory framework that sought to balance the potential of digital currencies with the need for market stability, investor protection, and adherence to financial norms. The combined efforts of various regulatory bodies and the introduction of new legislation underscored Kenya’s commitment to establishing a structured and secure environment for the burgeoning cryptocurrency market.