EthSwitch, Ethiopia’s National Payment Switch, Partners with MasterCard to Expan...

According to a local report, Kenya is considering new regulations that would require cryptocurrency exchanges to pay taxes on commissions they earn from their customers.

It is reported that over four million people are engaged in digital currency trading in the country, and exchanges that enable the buying and selling of digital assets will be required to pay a 1.5 percent duty on commissions received.

“For the purposes of these regulations, a taxable electronic, internet or digital marketplace supply include…facilitation of online payment for, exchange or transfer of digital assets excluding services exempted under the Act,” says the Value added Tax (Electronic, Internet and Digital Marketplace Supply) Regulations, 2023 published by Treasury Cabinet Secretary, Njuguna Ndung’u.

Kenya introduced a 1.5 percent digital service tax in January 2021, which aimed to curb tax avoidance by some multinational companies. The tax applies to a wide range of digital services, including online marketplaces, streaming services, and mobile money transactions.

However in April 2023, Kenyan President, William Ruto, indicated to investors that Kenya will scrap the 1.5% levy on digital services charged on multinationals operating locally, and instead, adopt a global framework on taxing multinationals by the Organization for Economic Cooperation and Development (OECD) which will be implemented in 2024.

Online exchanges typically charge fees for buying and selling cryptocurrencies which can range from 0.9 – 4.9%. According to the Business Daily, the sector is not regulated in Kenya and remains largely unregulated even in the developed world.

“This makes it difficult to establish the value of digital assets held by the mostly tech-savvy Kenyans, but the amount could run into billions of shillings,” the report says.

Several organizations in the country have indicated they are working on crypto regulations including a department in the country’s senate and a multi-body team composed of the Central Bank of Kenya and the Kenya Capital Markets Authority.

A private member’s Bill in the country’s National Assembly, dubbed Capital Markets (Amendment) Bill 2022, also seeks to introduce taxation of crypto exchanges, digital wallets, and impose transaction taxes akin to excise duty charged on bank transactions.

The proposed amendment Bill allows the Kenya Revenue Authority (KRA) to go after Kenyans that own cryptocurrencies for the purposes of enforcing taxation on their crypto holdings.

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MasterCard has entered into a Memorandum of Understanding (MoU) with EthSwitch, the national payment switch of Ethiopia, to facilitate the implementation and widespread adoption of digital payment services by financial institutions throughout the country.

According to a statement released in April 2023, MasterCard said the partnership shall enable EthSwitch to further expand the accessibility and availability of digital money transfers by utilizing MasterCard Send, a platform that enables instantaneous domestic and cross-border money transfers.

The platform is designed to enhance user experience which in turn will play a significant role in promoting the adoption of digital payments and the transition towards a cashless economy in Ethiopia.

“Ethiopia is quickly moving into the digital economy and EthSwitch is striving to achieve its strategic goals, which substantially contributes for the success of Digital Ethiopia 2025, National Digital Payments Strategy and National Financial Inclusion Strategies,” says Yilebes Addis, Chief Executive Officer at EthSwitch.

“It is critical that we advance Ethiopia’s financial system to support the economy with an improved flow of remittances in the country. Our partnership with Mastercard is a significant step as we embrace the continued modernization of the national payments system and enhance financial inclusion in the country.”

In collaboration with EthSwitch, MasterCard intends to introduce a mobile phone application that will facilitate the transfer of funds, ultimately displacing traditional brick-and-mortar transfers as consumers increasingly seek convenient and contactless payment options. Customers are expected to benefit from fast payout capabilities, secure transactions, and the ability to send and receive funds at any time, thereby enhancing the overall user experience of digital payments.