In an unexpected move, the government of Nigeria has passed a new law that will tax cryptocurrencies although crypto experts say it could fail
The Central Bank of Nigeria prohibited people from trading cryptocurrencies in 2021. On the eve of leaving office in 2023, the Buhari-led government, which had been against crypto in the past, surprised everyone by passing a new law to tax gains on digital assets like cryptocurrency.
Several changes to the 2022 Finance Act led to the crypto tax. The Finance Act says that earnings from digital assets are now taxed at a rate of 10%.
The Capital Gains Tax Act is changed by adding “digital assets” after the word “debt” in Section 3(a): “Subject to any exceptions provided by this Act, all forms of property, whether located in Nigeria or not, shall be assets for the purposes of this Act, including options, debts, digital assets, and incorporeal property in general.”
Adewale Ajayi, a partner at KPMG, says that cryptocurrencies, non-fungible tokens, and other tokenized assets are all digital assets.
Even though the change caught crypto traders by surprise, it has been in the works for a long time. Nigeria’s budget for 2023 has a debt payment cost of 6 trillion, which is 31% of the budget, and a budget deficit of 11.34 trillion, more than 5% of the country’s gross domestic product.
The government is looking for new ways to bring in money to fix this. Since more than $260 million was traded in crypto assets last year, a tax on crypto assets might be a good idea.
We woke up to see it in the news.”
“How can you tax something you don’t know about or haven’t made a plan for?” asked Obinna Iwuno to TechCabal. Iwuno is the head of the Stakeholders in Blockchain Technology Association of Nigeria (SiBAN), which comprises private players in the Nigerian blockchain ecosystem, and is known as one of the stakeholders who helped write the national blockchain policy.
“If you want to tax crypto,” he said, “which is fine because crypto generates economic activity that can add to the country’s GDP, you need to set up a framework and get stakeholders around a table to make good policy.” SiBAN had no idea that this move was coming from the start. Like everyone else, we woke up to see it in the news
When Nigeria said it would start a national blockchain policy last month, most crypto enthusiast didn’t care. Since crypto was still against the law, they didn’t care as much about the story.
TechCabal said at the time that the blockchain policy had high goals that didn’t include cryptocurrency. But when we talked to one of the people interested in the bill later, we found out that the government was ready to “change its strong stance against crypto.”
There is a possibility that it is now becoming evident how these changes will play out, especially in light of this most recent move: a 10% capital gains tax on digital assets, which includes cryptocurrencies.
How will the tax work?
Wale, a crypto trader, told TechCabal that the government would need to work with foreign exchanges and give crypto traders licenses for the tax to operate. “If the government wants me to pay a crypto tax, they must make it legal and let exchanges open offices in Nigeria.
“The government can’t take money from us if we are banned, and if I have problems with the exchanges, I have to fly to Dubai or Singapore,” he said. The Securities and Exchange Commission of Nigeria told Binance Nigeria Limited yesterday to stop trying to get Nigerian investors.
A source at Nigeria’s tax agency, the Federal Inland Revenue Service, who did not want to be named, said that the plan to enforce the tax is still in the works and will be decided by the Joint Tax Board. The tax can be enforced by either the FIRS or state bodies. In 1961, the Joint Tax Board was made to ensure Nigeria had the same standards and fees.
Iwuno said that taxing crypto is not a bad idea, but overtaxing a young business that is still growing could kill it. “The crypto industry in Nigeria is still young, and if you tax it too much or too soon, you could kill it,” he said. Obinna said, “We can’t assume what they haven’t said. They will have to tell the truth.”
Davizoe Effiong, CEO of BEI Consultancy, a blockchain consulting company based in Nigeria, told TechCabal that a tax on crypto gains would stop people in Nigeria from using cryptocurrency. He said that capping the tax benefit at 5% would not (entirely) demotivate players and would allow the growth of cryptocurrency use in the country to continue.
“If the government wants to make money from crypto, it needs to put its money where its mouth is and get involved. One way to do this is to ensure the accounts of crypto exchanges, just like they do for banks, so that people who use crypto can be sure that their money is safe.
They can also give crypto operators loans and make the whole ecosystem more appealing to foreign players, which will help it grow,” Effiong said.
As is typical for Nigerian government organizations, this law may not be enforced for a very long time. Bola Tinubu, the new president of Nigeria, said that he would lead a ” bullish ” government on crypto and blockchain technology. It will be interesting to see how his government implements this law.
But there is still a harsh truth: by law, every crypto trader or “holder” would have to give the government 10% of their gains, even though it still bans crypto.