Introduction
Digital currencies including cryptocurrencies will soon be regulated. These proposals are contained in a legislative proposal by Hon. Abraham Kirwa, Member of Parliament for Mosop Constituency.
The proposed Capital Markets (Amendment) Bill, 2023 seeks to amend the Capital Markets Act, Cap. 485A to include a digital currency within the definition of securities so as to be governed in the Act. The sponsor has stated that this will then provide for governance and oversight in an area that is quickly growing, but is not adequately regulated exposing citizens to various risks.
The legislative proposal also provides for specific provisions to govern digital currency transactions in Kenya including, the definition of digital currencies, its creation through crypto mining, provides for regulations around trading of digital currencies, outlines responsibilities of persons or businesses trading in digital currencies, provides for its taxation, ownership and provides for promotion of innovation in this area.
The sponsor also states that the legislative proposal seeks to ensure that environmental aspects of digital currency generation and crypto mining is done in an environmentally safe manner. This, he believes, will encourage for citizen participation in an equitable and decentralized financial system that utilizes smart contracts, connecting Kenyans to global markets.
The legislative proposal is undergoing prepublication scrutiny before the Departmental Committee on Finance and National Planning of the National Assembly of Kenya.
Overview of the legislative proposal
The legislative proposal contains 4 clauses.
Clause 2 of the legislative proposal seeks to amend section 2 of the Capital Markets Act (Interpretation) to amend the definition of “securities” to include digital currencies within the definition and to insert new definitions of “blockchain”, “cryptocurrency”, “crypto miner”, “crypto mining”, and “digital currency”.
Clause 3 of the legislative proposal seeks to amend section 12 of the Capital Markets Act (Power of the Minister to issue rules and regulations) to include the trading in digital currencies amongst items to be provided for in regulations.
Clause 4 of the legislative proposal seeks to insert a new Part IVC providing for digital currencies. The new Part proposes to introduce new sections on applying to trade in digital currencies, responsibilities of persons trading in digital currency, taxation of digital currency, register of digital currency, and transitional provisions. The new Part is elaborated further in the subsequent paragraphs.
The new section 30AB provides as follows–
30AB. (1) A person who intends to introduce a new cryptocurrency product shall apply to the Authority in the prescribed form for a license.
(2) A person who applies for a license under subsection (1) shall satisfy the Authority that—
(a) the new cryptocurrency product was subjected to a product development period of not less than two years; and
(b) the product was subject to a product test on a customer base of not less than ten thousand customers.
(3) The Authority shall consider the conditions for a grant of license as provided in subsection (2) and may─
(a) grant a license;
(b) reject the grant of license by giving written reasons; or
(c) provide for any necessary additional requirements to be met before the grant of a license.
The new section 30AC provides that, “A person to whom a license is granted under section 30BB shall register the digital currency with the Authority“.
The new section 30AD provides for responsibilities of persons trading in digital currency. It provides as follows–
30AD. A person who trades in digital currencies shall—
(a) keep records of digital currency transactions, including purchases and sales;
(b) pay taxes on any gains that are made from transactions in digital currencies in accordance with the applicable laws.
The new section 30AE provides for the taxation of digital currency. It provides as follows–
30AE. (1) Where the digital currency is held—
(a) for a period not exceeding twelve months, the laws relating to income tax shall apply; or
(b) for a period exceeding twelve months, the laws relating to capital gains tax shall apply.
(2) A person who possesses or deals in digital currency shall provide the Authority with the following information for tax purposes—
(a) the amount of the virtual currency in terms of Kenya Shillings;
(b) the type of virtual currency transacted in;
(c) the date on which the virtual currency was acquired;
(d) the date on which the virtual currency was sold;
(e) the amount of proceeds from the transaction;
(f) any costs related to the transaction; and
(g) the amount of any gain or loss on the transaction.
The new section 30AF provides that the Capital Markets Authority shall cause to be kept a centralized electronic register of all transactions in digital currencies.
The new section 30AG provides that within six months of coming into force of the Act, a person trading in digital currencies shall apply to the Capital Markets Authority for a license.
Prepublication scrutiny
Standing Order 114(7) of Kenya’s National Assembly Standing Orders provides that the Departmental Committee to which a legislative proposal is referred to for prepublication scrutiny shall consider the proposal and submit a report to the Speaker within thirty (30) days recommending whether or not the proposal should be proceeded with.
Prepublication scrutiny is a winnowing process where the Committee broadly scrutinizes a legislative proposal for soundness of policy in order to determine whether it should recommend whether the legislative proposal should be published as a Bill or not.
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ayes & nays