In a surprising move, the Nigerian government has introduced a new law that will create a tax on cryptocurrencies. Crypto traders say that it might not work.
In 2021, the Central Bank of Nigeria banned cryptocurrency trading. Now, in 2023, on the eve of its departure, the Buhari-led government, with its history of being averse to crypto, surprisingly introduced a new law to tax gains on digital assets like cryptocurrency. The crypto tax comes from a series of amendments to the 2022 Finance Act. According to the Finance Act, there is now a 10% tax on profits on digital assets.
Section 3(a) of the Capital Gains Tax Act is amended by inserting the phrase “digital assets” after the word “debt” as follows: “Subject to any exceptions provided by this Act, all forms of property shall be assets for the purposes of this Act, whether situated in Nigeria or not, including options, debts, digital assets, and incorporeal property generally.” According to Adewale Ajayi, a partner at KPMG, digital assets include cryptocurrencies, non-fungible tokens, and other tokenised assets.
Although the amendment comes as a surprise to crypto traders, it has been in the works for a long time. Nigeria’s 2023 budget comes with a debt service cost of ₦6 trillion—31% of the budget—and a budget deficit of ₦11.34 trillion—more than 5% of the GDP. To remedy this, the government is looking for new sources of revenue, and with over $260 million worth of crypto transactions concluded last year, a tax on crypto assets might come in handy.
“We woke up to see it in the news”
“How can you tax what you have not recognised or created a policy for?“ a puzzled Obinna Iwuno told TechCabal. Iwuno is the president of the Stakeholders in Blockchain Technology Association of Nigeria (SiBAN), a body comprised of private players in the Nigerian blockchain ecosystem and recognised as one of the stakeholders involved in the drafting of the national blockchain policy. “If you want to tax crypto,” he continued, “and it’s okay to do that because crypto generates economic activity that can contribute to the country’s GDP, you must first create a framework and gather stakeholders around a table for adequate policy formation. SiBAN knew nothing about this move from the beginning. Like everyone else, we woke up to see it in the news.”
Last month, when Nigeria announced that it was introducing a national blockchain policy, most crypto enthusiasts didn’t budge. They generally cared less about the news, as crypto was still outlawed by the government. TechCabal reported then that the blockchain policy had lofty ambitions that excluded crypto. But in a later conversation with one of the bill’s stakeholders, we learned that the government was ready to “adjust its strong stance against crypto”. It may now be getting clear how these adjustments will play out, especially with this latest move: a 10% capital gains tax on digital assets, including cryptocurrency.
How will the tax work?
Wale*, a crypto trader, told TechCabal that for the tax to work, the government would have to partner with international exchanges and licence crypto traders. “If the government wants me to pay a tax on crypto, they have to legalise us and allow the exchanges to open offices in Nigeria. [The government] can’t be taking money from us if we are banned, and I have to fly to Dubai or Singapore if I have issues with the exchanges,” he said. Yesterday, Nigeria’s Securities and Exchange Commission directed Binance Nigeria Limited to immediately stop soliciting Nigerian investors in any form whatsoever.
According to an anonymous source at the Federal Inland Revenue Service (FIRS), Nigeria’s tax authority, the procedure and the guidelines to enforce the tax are still in the works and will be decided and released by them in collaboration with the Joint Tax Board. The Joint Tax Board is the apex Body that was created in 1961 to ensure uniformity of standards and the application of taxes in Nigeria.
Iwuno asserted that while taxing crypto itself is not a wrong move, over-taxing could bleed out an infant industry that is still taking shape. “The crypto industry in Nigeria is still a baby, and over-taxing or taxing it too early can kill it,” he said. When asked if the taxation could confer some form of legitimacy on crypto, Obinna said, “We can’t assume what they have not said. They’ll have to come out clear.”
Davizoe Effiong, the CEO of BEI Consultancy, a Nigeria-based blockchain consultancy firm, told TechCabal that a tax on crypto gains would crash the adoption of cryptocurrency in the country. According to him, capping the tax profit at 5% would not (completely) demotivate players and allow for the continued vertical trajectory of crypto adoption in the country.
“If the government wants to earn revenue from crypto, it must put skin in the game and really get involved. One way to do this is by insuring the deposits of crypto exchanges—akin to how it does for banks—so that crypto adopters can be reassured of the safety of their funds. They can also support crypto operators with loans and generally grow the ecosystem by making it more attractive to international players,” Effiong said.
Like is the custom of Nigerian government agencies, this act may take forever to be enforced—if it ever is. Nigeria’s new president, Bola Tinubu, promised an administration that is bullish on crypto and blockchain technology. It will be interesting to see how his administration responds to enforcing this act. However, a harsh reality remains: by law, every crypto trader or “hodler” would have to give the government a tithe of their earnings, even while the government ban on crypto remains.
*Name(s) have been changed to protect our sources
