A Kenyan parliamentary committee has granted approval for the Capital Markets (Amendment) Bill, 2023, signaling a pivotal shift in the country’s approach to digital currencies. 

The proposed amendments aim to broaden the definition of securities to explicitly include digital currencies, with a particular focus on cryptocurrencies. This legislative move, set to amend the existing Capital Markets Act, Cap 485, carries multifaceted objectives.

The bill encompasses a comprehensive framework, addressing key aspects of the cryptocurrency landscape:

Taxation Enhancement: The amendments propose an increase in taxation for crypto exchanges and digital wallets, aligning them with traditional financial institutions by introducing transaction taxes akin to those applied to conventional bank transactions.

Regulatory Framework: Recognizing the growing influence of cryptocurrencies, the bill seeks to establish a formal regulatory framework for their trading. This step is crucial for bringing transparency and oversight to the evolving digital financial landscape.

Preventing Illicit Activities: With a strong emphasis on curbing the proceeds of crime and preventing terrorism financing, the bill introduces measures to fortify safeguards against illicit activities within the cryptocurrency space.

Under the proposed legislation, individuals engaged in digital currency trading would be mandated to maintain meticulous records of their transactions. Additionally, tax obligations would extend to any gains derived from digital currency transactions, and income tax laws would apply when holding digital currency for up to twelve months.

The Capital Markets (Amendment) Bill, 2023, brings forth pivotal provisions to reshape the regulatory landscape for cryptocurrencies in Kenya. Notable aspects of the bill include:

1. Taxation for Crypto Exchanges and Digital Wallets: Proposing a substantial increase in taxation, the bill targets crypto exchanges and digital wallets. Introducing transaction taxes mirroring those on traditional bank transactions, this provision aligns the taxation framework for digital financial activities with conventional banking practices.
2. Capital Gains Tax on Crypto: The legislation outlines the imposition of a capital gains tax on users realizing capital gains from the sale of their cryptocurrency assets. This tax targets individuals profiting from the appreciation in the value of their crypto holdings, marking a significant step in formalizing and regulating the taxation aspects of the cryptocurrency market.

The Capital Markets (Amendment) Bill, 2023, is navigating the legislative journey in Kenya, inching closer to potential presidential approval. Published in the Kenya Gazette Supplement No. 77 on May 24, 2023, the bill took its initial step by being laid on the table of the House on October 11, 2023.

Having undergone the first reading, the bill is now on the cusp of its imminent second reading in the Kenyan National Assembly. This upcoming stage marks a pivotal moment, where the proposed amendments will undergo more profound scrutiny, inviting debates, potential amendments, and thorough examination by assembly members.

The anticipation surrounding the second reading underscores its critical nature. During this phase, debates will unfold, providing a platform for discussions, considerations, and potential amendments. This stage is crucial for refining the proposed legislation in response to diverse perspectives.

Following the second reading, the bill will proceed to the referral to committee stage and, subsequently, the third reading, culminating in a final vote that will shape its destiny. 

In response to the escalating use of cryptocurrencies in the country, legislators, notably Kimani Kuria, emphasized the urgency of implementing regulations. The focal point was the Capital Markets (Amendment) Bill, 2023, seen as pivotal in safeguarding against illicit activities and ensuring the integrity of the digital currency ecosystem. 

Cryptocurrency regulation is hailed for its role in protecting investors and consumers, preventing fraud, scams, and money laundering. The regulatory framework is deemed essential for establishing fair and transparent service levels, especially with the growing number of cryptocurrency users. Furthermore, it promotes accountability and acts as a deterrent against manipulation. 

Once approved, the Capital Markets (Amendment) Bill, 2023, will be sent for the Kenyan president’s assent. Kimani Kuria, leading the committee that approved the bill, underscored the critical importance of regulating the crypto space in a country boasting millions of users.

“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,” Kuria said.

Abraham Kirwa, the sponsor of the Capital Markets (Amendment) Bill, 2023, and Member of Parliament for Mosop, criticized the Central Bank of Kenya for what he perceived as a lack of proactive measures in addressing the risks associated with cryptocurrencies. 

Kirwa contended that the bill is essential for safeguarding Kenyan crypto users from potential pitfalls and fraudulent activities within the digital currency space. His advocacy emphasized the importance of legislative intervention, positioning the proposed bill as a proactive and comprehensive measure to address the challenges and protect users.