Nigerian Regulators Looking to Amend Asset Rules to Tax Crypto Deals

Nigeria’s government is strengthening its regulation and taxation of cryptocurrency transactions to increase national revenue and enhance oversight of the digital asset market.

This involves a delicate balancing act between generating much-needed government revenue through taxation and fostering a regulatory environment conducive to innovation and sustainable growth within the cryptocurrency sector.

Moreover, the recent regulations amendments, focusing on the taxation of cryptocurrency and digital transactions, represent a significant shift in the nation’s approach to this rapidly evolving technological landscape.

Nigeria SEC Spearhead Crypto Regulations Changes

Nigeria’s Securities and Exchange Commission (SEC) is spearheading this initiative. The agency is actively developing new rules designed to bring all qualifying transactions conducted on regulated exchanges under the purview of the formal tax system.

Additionally, bills on the taxation of cryptocurrency transactions and the introduction of other related taxes have already been submitted to the legislature, with passage anticipated within the current quarter.

However, this regulatory evolution starkly contrasts the initial stance adopted by the Central Bank of Nigeria (CBN) in 2021. The CBN’s ban on financial institutions facilitating cryptocurrency transactions stemmed from concerns regarding cryptocurrencies’ inherent opacity and potential exploitation for illicit financial activities.

The emphasis then was on safeguarding the integrity of the national financial system from the perceived risks associated with unregulated digital currencies.

However, the ban proved ineffective in stemming the tide of cryptocurrency adoption within Nigeria. The persistent demand led to a surge in peer-to-peer transactions, highlighting the crypto community’s resilience and the limitations of outright prohibition.

Nigeria Government Previous Stance

In December 2023, the ban on cryptocurrencies was lifted, shifting from a complete prohibition to regulated oversight. New SEC guidelines helped banks handle crypto accounts, paving the way for broader crypto adoption. The 2022 Finance Bill solidified this by including the crypto industry in the national tax system.

Notably, crypto startups now need licenses from the SEC. This means virtual asset service providers (VASPs) must register and follow strict rules. Companies like Busha and Quidax already have provisional licenses.

Furthermore, stricter crypto rules aim for security and transparency but may hurt smaller businesses. High compliance costs could stifle innovation and limit growth, impacting the broader economy.