Ever since cryptocurrencies started gaining widespread popularity in Kenya, the regulation policy has always been combative rather than facilitative. Incidentally, it appears to be the policy direction of majority of governments around the world to hinder one of the most innovative technologies.
In Kenya, a proposed amendment to the The Capital Markets Bill seeks to achieve a couple of things.
TL:DR
1: Expand the definition of Securities to include digital currencies.
2: Regularize the registration and launching of cryptocurrencies in Kenya. [Must have been in development for more than 2 years and have a user base of more than 10,000 individuals]
3: Registration of individuals trading in cryptocurrencies with the local regulatory body.
4: Income taxes applying on cryptocurrencies held for less than 12 months and capital gains taxes on crypto held for more than 12 months.
There is more to the proposed amendments but these are the main points that stick out to me. Most of these proposals reveal a total lack of understanding on the very basics of what cryptocurrencies are.
A lazy blanket definition of digital currencies as securities is particularly worrisome. It fails to recognize that every cryptocurrency is different from the next i.e. in the way it was issued and in its purpose. For example, stablecoins cannot be defined as securities as they are not designed to be traded for profit.
As such, a regulation that doesn't make the effort to take this into account is already flawed to begin with.
However, the tax proposal is what I simply can't get my head around.
How do you impose or even implement income tax on digital currencies? How do you judge that an individual is compliant with the regulation?
In Kenya, and specifically the capital, Nairobi, we have a running joke that a majority of the youth never seem to live their homes but for some reason they are able to meet their rent obligations, own vehicles and even spend most weekends traveling or making merry. Well, the reason for this is online work. Academic writing, article writing, cryptocurrencies, fraud are quite big in this part of the world.
Because of this huge income stream, the government sought to impose a tax on it. Unfortunately, it failed spectacularly because it relied on self-reporting. Everybody just filed nil-returns and went on with their business. If that failed, how would this proposed income tax on cryptocurrencies work?
My overall opinion on these digital currency regulations in Kenya and even around the world, is that it is next to impossible to create an effective law. This technology is a moving target, especially because of its accessibility and liberal nature. No one person has control over what to do with the technology.
As such any attempt to pin it down or bottle it up in a singular definition will fail consistently. We have already seen the cascading effects, especially on emerging economies like Kenya, of centralized money due to the negligent monetary policies of the FED.
It is digital currencies like Bitcoin and Hive that have given numerous unemployed youth in Kenya opportunities to earn a decent income, since there are very few barriers to entry. Why would anyone want to hinder that?
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