Interestingly, it seems to be a problem only when pasting into Kate. If I try copy-pasting into my terminal (directly onto the shell prompt or into the Helix editor; on Konsole), it correctly shows hashes.
@bharadwaj-raju yes, copying from Dolphin into Kate results in # being replaced with %23 but my white space is not replaced with %20. Also, pasting paths into krunner are pasted as one line without any white space separator between the paths.