Nigeria's Crypto Tax Raises Challenges Amid Uncertain Official Recognition
The introduction of a capital gains tax on digital assets in Nigeria has raised concerns about the challenges of collecting taxes due to the lack of clarity surrounding the official recognition of cryptocurrencies in the country. The 2023 Finance Act, recently signed into law, implemented a 10% capital gains tax on profits generated from the disposal of digital assets starting from May 1, 2023. The Securities and Exchange Commission (SEC) clarified that digital assets include cryptocurrencies, security tokens, and non-security tokens.
Experts warn that enforcing the tax may prove difficult as the stance of the Nigerian government on cryptocurrencies remains unclear. Since cryptocurrency transactions cannot be easily monitored like traditional bank transactions, tax authorities will heavily rely on self-reporting by crypto traders to assess and collect the appropriate taxes. However, given the "opaque nature" of some crypto transactions and the general aversion to self-reporting taxes in the country, it is uncertain how many crypto traders will willingly comply.
The uncertainty surrounding the status of cryptocurrencies in Nigeria adds to the complexity. In 2021, the Central Bank of Nigeria (CBN) ordered banks to terminate services for customers involved in crypto buying, selling, or trading. Although individual citizens are still allowed to trade cryptocurrencies, Nigerian banks are prohibited from dealing with crypto-assets and facilitating payments to and from crypto exchanges. The CBN expressed concerns about fraud, terrorism financing, and volatility associated with virtual currencies.
The ban on crypto-related services by banks has pushed users toward over-the-counter (OTC) deals and informal peer-to-peer markets. The lack of formal recognition and the government's actions against banks have created a challenging environment for crypto transactions. The recent tax policy may further dampen interest in digital assets, potentially hindering their contribution to the struggling Nigerian economy. However, some stakeholders see an opportunity for negotiation with policymakers to establish a more favorable framework that promotes market growth and recognition.
While Nigeria has launched a national policy to drive blockchain technology adoption, which recognizes the legitimacy of cryptocurrencies and exchanges, the future remains uncertain. The policy aims to mitigate risks such as money laundering and fraud, fostering trust in cryptocurrencies and making them more accessible to businesses and individuals. The SEC is also exploring tokenization and plans to develop a pilot program for a permissioned liquidity pool consisting of tokenized bonds and deposits.
Amidst this evolving landscape, authorities remain tight-lipped about the official status of cryptocurrencies in Nigeria. The impacts, challenges, and opportunities of the new tax policy are being closely monitored by industry stakeholders. Recognizing the government's acknowledgment of the sector, organizations like the Stakeholders in Blockchain Technology Association of Nigeria (SiBAN) see it as an opportunity to negotiate for a more favorable process that supports the thriving of the crypto market.