Nigeria is set to implement new taxes on cryptocurrency, including a capital gains tax and VAT on exchanges, aiming for significant annual revenue. Critics argue these measures may push users to unregulated platforms, complicating compliance. The SEC is adjusting regulations to support this tax system, while legal actions against Binance highlight the challenges posed by the current digital landscape.
Nigeria is implementing new taxation rules on cryptocurrency transactions, including a 0.5–1% capital gains tax and a 10% VAT on exchanges. The government aims to generate around 200 billion naira ($250 million) annually through these measures, motivated by the need for revenue amid economic challenges. However, critics warn that such high taxes may steer users towards unregulated peer-to-peer platforms, complicating compliance and revenue collection.
To adapt to the growing digital market, the Securities and Exchange Commission (SEC) is revising its rules to support the new tax framework. In February, Nigeria’s intention to alter its digital asset regulations to include taxes on cryptocurrency trades emerged, with the National Assembly considering a bill to establish a legal framework for taxing activities on approved exchanges.
Additionally, the SEC is broadening its licensing approach to monitor compliance. The first crypto exchange license was granted in August 2024, and steps are being taken to regulate unauthorized platforms. Earlier, Nigeria took legal action against Binance for alleged unpaid taxes, filing an $81.5 billion lawsuit seeking $2 billion in back taxes alongside hefty damages for the alleged devaluation of the local currency.
As Nigeria ranks as the world’s 53rd largest economy, it anticipates increased GDP growth from 2010 to 2050, as per Citigroup’s projections. Economic difficulties prompted the government to pursue extensive tax reforms, including a new minimum wage system. Officials believe targeting unregulated crypto platforms such as Binance could yield over $81 billion in revenue.
Balancing crypto taxation and compliance poses challenges, especially considering that more than 45% of Nigerian adults are unbanked, with around 35% using digital assets for payments and savings. The government hopes to integrate this informal economy through taxation, although excessive fees could lead to a flight towards unregulated P2P platforms. The effectiveness of these policies will depend on achieving a balance between regulatory oversight and innovation, as well as leveraging blockchain analytics for improved enforcement, akin to the approach taken in India with Chainalysis.
Nigeria’s new tax regime on cryptocurrency aims to bolster revenue generation amid economic hardship, but the high tax rates pose risks of pushing users toward unregulated platforms. The SEC’s regulatory updates and potential legislation may help formalize digital asset trading, yet success hinges on a careful balance between enforcement and fostering innovation. The challenge of integrating a significant unbanked population into the tax framework complicates the initiative further, potentially impacting expected revenue gains.
Original Source: www.tronweekly.com
