Kenya Proposes Real-Time Crypto Tax System with AI to Track Transactions

• Kenya proposes real-time monitoring of crypto transactions to improve tax collection.
• The KRA plans to use AI and machine learning to detect and prevent tax evasion.
• Kenya’s reforms have sparked protests due to concerns over increased taxes and regulation.

Kenya is preparing to tighten regulations around cryptocurrency transactions by introducing a real-time tax monitoring system. The Kenya Revenue Authority (KRA) has proposed integrating cryptocurrency exchanges with the tax system to track transactions in real-time.

This move aims to capture critical details such as transaction time and value, which will be used to assess and collect taxes on cryptocurrency trades.

The KRA has expressed concerns that the current tax system is unable to effectively monitor the growing use of cryptocurrencies, leading to significant revenue losses.

Under Section 3 of Kenya’s Income Tax Act, crypto income is taxable, but the lack of infrastructure to track transactions has hindered proper tax collection. With this new system, Kenya aims to plug revenue gaps in its cryptocurrency market.

In addition to this reform, the KRA is considering the use of artificial intelligence (AI) and machine learning technologies to enhance the detection of tax evasion.

These advanced tools are expected to improve transparency and efficiency in tax administration. By analyzing transaction patterns, the KRA hopes to identify discrepancies and improve compliance among cryptocurrency users.

Kenya has emerged as a leading country in cryptocurrency adoption in Africa. Many Kenyans have turned to cryptocurrencies as a hedge against inflation and currency depreciation. However, the increased use of these digital assets has raised concerns about tax evasion. 

The proposed tax monitoring system aligns with the Kenyan government’s broader efforts to increase revenue collection. The government has also announced plans to utilize mobile payments, including popular platforms like M-Pesa, as virtual electronic tax registers starting in December 2024. 

These reforms, though intended to boost revenue, have sparked opposition and protests, particularly among younger Kenyans who are critical of the government’s tax hikes and regulatory changes.