One of Sub-Saharan Africa’s leaders in tech adoption, Kenya, may have pleasantly surprised many with its current stance on the potential benefits of Bitcoin. However, recent changes around the taxation of mobile technologies and payments could render a significant portion of their efforts fruitless.
Reports from earlier this month indicate very positive interest from the Central Bank of Kenya (CBK) regarding digital currencies. Speaking more specifically about Bitcoin, the CBK’s governor – Patrick Njogore – noted the number one cryptocurrencies potential to act as a buffer against the effects of the rapid devaluation of the Kenyan shilling.
More specifically, Njogore put forward a revolutionary strategy to protect the Kenyan economy against the exploitative nature of the current global financial system by using Bitcoin as the country’s base currency.
“Our decision to shift to Bitcoin is both tactical and logical. Our currency has always been the punching bag for the International Monetary Fund which always claims that the Kenya shilling is overvalued. This has led to too much pressure on the Kenyan Shilling and this has a negative effect on the economy. We are losing too much simply because someone at IMF woke up on the wrong side of the bed. Bitcoin will put an end to this,” Njogore said.
Naturally, the CBK following through on this would likely bring a major boost to crypto adoption in the region, and possibly other parts of the world. However, some of Kenya’s past decisions around mobile taxation may work against Njogore’s bet that “It should be easy for Kenyans to switch to Bitcoin and other digital currencies because they are already used to cashless transactions.”
As true as that may be – Kenya has been a pioneer in mobile payments technology for a number of years now – the government’s decision to increase its tax on internet data services, and airtime tax to 15%, and charge an excise duty of 20% on mobile money transfers, may act as stumbling blocks to adoption and a fuller form of financial inclusion.
If Bitcoin and other cryptocurrencies were to be recognised as legal tender in Kenya, then it is very likely that payments made in digital currency would be taxed under the mobile money transfer taxes – especially when you consider that mobile devices are the leading means through which people in developing countries access the Internet.
“A higher tax rate on low-level retail electronic transactions mostly levied on low-income earners that are sensitive to transaction costs may discourage the use of mobile phone-based transactions, incentivising them to revert to cash transactions to evade taxes” as research group Brooking points out.
Even if the Kenyan government were to exempt digital assets from the rigors of mobile money transfer tax, access to the internet is the first step to accessing the decentralised economy, so making it costlier for those who need it most seems to defeat the purpose.
One of the core values around Bitcoin and crypto is the democratisation of finance, and the most vulnerable groups need cheaper internet access if they are to benefit from the fourth industrial revolution.
