Nigeria’s recent move to tax crypto transactions has sparked a discussion among local stakeholders. The Nigerian government wants to control and bring in money from the digital asset market. However, critics say the move is too soon and could slow down innovation and economic growth.
Nigeria’s crypto tax concerns
On May 28, the day before he resigned as president of Nigeria, Muhammadu Buhari signed the Finance Act, 2023, into law.
The act enacts new tax policies with the intention of updating the country’s tax system. In one of its many measures, a new 10% tax on the sale of digital assets like crypto was introduced. This was the first time Nigeria took a tax swing at crypto investors.
The overarching purpose of the proposed legislation is to increase government openness, increase tax collection, and stimulate the economy. The legislation’s goal is to introduce a tax on cryptocurrencies in response to the rising value of these digital assets.
With this move, the Nigerian government hopes to level the playing field for those who have digital assets. This makes it more likely that they would pay their fair share of taxes toward the nation’s growth.
Nigeria recognizes the country’s economic growth from crypto
Nigeria has taken this step because it recognizes digital assets’ growing importance and economic potential. The government wants to ensure its tax system evolves at the same rate.
A Nigerian analyst claims that the additional taxes are evidence that cryptos are being recognized as legitimate assets and integrated into the current financial and legal system. This comes after the Central Bank of Nigeria decided in February 2021 to bar commercial banks from offering services to crypto exchanges.
Another unidentified local crypto specialist warned that the peculiarities of digital assets, such as valuation, transaction tracking, and cross-border complications, could make taxation a difficult proposition.
These analysts point out that the government also needs to set up norms and give taxpayers more information and help. It appeared that a larger percentage of the crypto community agreed with this viewpoint.
Crypto exchanges operating within a given country’s borders are often required to help the government keep tabs on their customers’ investment returns. Due to this, authorities can access transaction data through their cooperation with exchanges in order to identify individuals or businesses for tax purposes.
Although cooperation and precise legislation may be different from one nation to the next, they exist. Regulations requiring exchanges to disclose user data may be more stringent in some regions, while others might have fewer restrictions or be still in the process of being drafted.
Nigerian crypto stakeholders call for balanced and informed crypto taxation
Local parties have voiced concerns about the lack of clarity in Nigeria’s crypto regulations. Confusion and uncertainty have arisen in the crypto exchange market as a result of prior circulars issued by the country’s central bank prohibiting banks from providing services to crypto exchanges.
The potential for growth and investment could be stunted if taxes were levied on a sector that lacked clear regulatory norms.
An increase in the number of young Nigerian entrepreneurs and tech-savvy individuals dabbling in the digital asset market in recent years suggests that this trend might have a significant impact on the country’s innovative capacity.
At this early stage, taxation may stifle innovation and discourage entrepreneurs from pursuing blockchain technology’s full potential. The government, they contend, should prioritize fostering an atmosphere conducive to innovation rather than rushing to tax crypto coins.
Another important factor frequently brought up by local actors is the requirement for education and knowledge in the crypto field. Many Nigerians still don’t understand what digital assets are or what they can do for them.
According to these crypto stakeholders, the government shouldn’t rush into taxes without first investing in educational programs to give citizens with the knowledge they need to make educated decisions about crypto and the DeFi market.
It would be wise for Nigerian authorities to learn from the experiences of other countries that have effectively adopted crypto legislation and taxation by conducting extensive research into global best practices. In doing so, Nigeria could guarantee that its strategy is well-considered, balanced, and appropriate to the region.
