In February, Nigeria sued for vinance for outstanding taxes and introduced a new cryptocurrency tax to boost its declining economy, but it may not have the intended effect.
According to Citigroup, Nigeria is projected to be the 53rd largest economy in the world and has the highest average GDP growth rate from 2010 to 2050. However, the country’s economic development has been forced to introduce important tax reforms, minimum wage frameworks, and more in recent years.
The country claims that by pursuing unregulated crypto exchanges like Binance, it could provide more than $81 billion to replenish its financial resources by introducing taxes into cryptocurrency transactions.
Still, according to Nic Puckrin, founder of the Coin Bureau, the tax isn’t a clear solution. Furthermore, importers often rely on crypto to deal with unstable NGN exchange rates. … They’ll have a lot of trouble collecting it. ”
Nigeria’s forecast gross domestic product (GDP) until 2029. Source: Statista.
Nigeria’s corruption prevents crypto taxation
Nigeria has Africa’s largest cryptocurrency market. It is reported that 22% of the population (approximately 47 million) own or use crypto assets. Since the country overturned the ban on digital currencies in 2021, the Nigerian government has not been slow to respond to the growth and adoption of cryptocurrencies.
Nigeria’s Securities and Exchange Commission (SEC) issued rules on digital assets in 2022, recognizing crypto as securities and providing guidelines for exchanges and custodians.
The government appears to be serious about getting significant benefits from crypto transactions, and has recently enacted a two-way lawsuit, demanding it be forced to pay $81.5 billion for the exchange’s economic losses.
The government’s 2023 National Blockchain Policy (2023) seeks to integrate blockchain into public services and signal long-term crypto integrity. CBN’s Enaila, Africa’s first CBDC, and fintech startups like Flutterwave and Chipper Cash, reached 64% of adults in 2023, expanding their financial inclusion within the country.
Outlined by Wefi Co-Founder and Board Member Maksym Sakharov.
“Nigerian regulators understand the location of the countries within the world’s cryptocurrency industry. In addition to being the largest economy in Africa, the highest level of crypto adoption is an economically promising move.”
Sakharov continues, “However, the country is known for its inadequate implementation of such market-changing policies.” Nigeria appears to be keen to advance taxation on transactions, but often fails when it comes to implementation due to the high levels of corruption.
Nigerians primarily use peer-to-peer (P2P) trading platforms to counter the effects of the country’s currency depreciation and high inflation. However, this level of crypto adoption has not resulted in significant GDP growth, but it supports Nigeria’s digital economy, contributing 18.4% to GDP in the fourth quarter of 2023.
Nigeria’s expected inflation rate is 2029. Source: Statista.
Taxes on all ciphers
According to the World Bank, Nigeria’s tax-GDP ratio is one of the lowest in the world at 6%. Nigeria’s Federal Inland Income Services (FIRS) reported that it had collected 10.1 trillion Nigerian naira ($12.7 billion) in 2022. VAT and corporate tax control income, but personal income tax compliance is weak.
With only 9% of Nigeria’s 70 million taxable adults paying income taxes in 2022, the move to tax individual cryptocurrency transactions could have an unbalanced motive to collect taxes from the informal sector and the unbanked population. Nigeria’s informal sector accounts for 65% of the country’s GDP and is now primarily operated under the government’s tax system.
Maksym said: “While taxing cryptos is not out of place, most crypto traders across the country may lose their faith in the government and find a way to bypass these tax clauses. The biggest exchange, Binance, is not fully operational within the country, so users have developed thriving P2P and OTC desks to carry out transactions.”
Related: Nigerian SEC strengthens crypto marketing rules
Taxing crypto transactions is a clear move towards a tap into the informal economy, as 45% of Nigerian adults don’t have banks, while 35% use crypto for remittances and savings. The proposed 0.5-1% capital gains tax could result in a 10% VAT exchanged for tax on crypto profits up to 200 million Nigerian naira ($250 million) per year.
However, the risk of cryptocurrency users repeatedly overtaxed could push them towards using unregulated P2P platforms, which could undermine compliance.
Nic Puckrin, founder of the Coin Bureau, says the government will have a hard time collecting taxes.
“With Nigeria’s thriving P2P ecosystem, if you want to avoid having to pay for a central exchange, you just need to remove it from the platform. I also don’t think the government has the resources to do this or track down those who don’t want to play the ball.”
Nigeria’s crypto tax proposal reflects a broader driving force to formalize digital and informal economies while dealing with fiscal pressures. Success depends on balancing regulations and innovation while ensuring compliance.
Excessive taxation curbs adoption, but careful and implemented policies could increase the revenue of the country and allow for further financial inclusion.
Nigeria can strengthen enforcement by adopting blockchain analytics tools. India collaborated with Chain Melting to integrate these as a tool for tracing taxable transactions. The country’s recent SEC guidelines for virtual asset service providers (VASPs) are already in line with the FATF recommendations, allowing for better monitoring of formal exchanges.
Anti-corruption initiatives such as digitalizing the tax process and expanding the EFCC duties (EFCC) can reduce leaks. The EFFC mission states that it seeks to support Nigeria’s mission to become a country with no economic and financial crimes. Nigeria could gradually build trust and compliance in the crypto economy through the combination of technology-driven transparency measures and public education on tax benefits.
Magazine: Mystery Celebrity Memo Coin Scam Factory, HK Company Dump Bitcoin: Asia Express
