Nigeria has introduced new cryptocurrency tax policies to boost its economy by targeting unregulated exchanges like Binance, projecting significant revenue gains. However, these initiatives face challenges such as corruption, ineffective policy implementation, and a reliance on peer-to-peer transactions that may evade taxes. Experts suggest that while there is potential for revenue growth, the approach must address fundamental systemic issues to be effective.
In February, Nigeria initiated legal action against Binance for unpaid taxes, coinciding with new cryptocurrency taxation measures intended to strengthen its struggling economy. As the 53rd largest global economy, Nigeria has been forecasted by Citigroup to achieve significant GDP growth. However, the recent economic challenges necessitated substantial tax reforms and a revised minimum wage framework, increasing the urgency for these reforms.
The Nigerian government aims that targeting unregulated cryptocurrency exchanges like Binance could provide substantial revenue, estimating $81 billion through proposed taxes on cryptocurrency transactions. However, industry expert Nic Puckrin of The Coin Bureau has criticized this strategy, noting, “Nigeria has one of the largest markets for retail OTC trading. … they are going to have a very hard time collecting that.”
Nigeria, being Africa’s largest cryptocurrency market, has seen a significant rise in crypto asset usage, with around 22% of the population (approximately 47 million individuals) engaged in such activities. Since the reversal of its digital currency ban in 2021, the government has established regulations via the SEC’s 2022 Rules on Digital Assets, acknowledging cryptocurrencies as securities and laying down operational guidelines for exchanges.
Through the recent lawsuit against Binance for $81.5 billion, the government expresses its commitment to capture revenue from cryptocurrency transactions. The 2023 National Blockchain Policy aims to integrate blockchain technology into public services, emphasizing long-term alignment with the cryptocurrency sector. Furthermore, Nigeria’s financial landscape has enhanced financial inclusion through innovations like the eNaira and fintech ventures.
Maksym Sakharov, co-founder of WeFi, highlighted the country’s significant role in the global cryptocurrency market, stating, “Nigerian regulators understand the country’s place within the global cryptocurrency industry… However, the country is known for its poor implementation of market-changing policies like this.” There exists a significant challenge with corruption that hinders effective policy implementation.
Most Nigerians utilize peer-to-peer (P2P) platforms to mitigate currency volatility, yet the high level of crypto adoption has not translated into GDP growth. Despite crypto’s digital economy contribution of 18.4% to GDP in Q4 2023, the tax-to-GDP ratio in Nigeria remains low at 6%. The FIRS collected $12.7 billion in taxes in 2022, with few formal employments making tax contributions.
The taxation of cryptocurrency highlights an intention to include the informal sector in the tax framework as a mere 9% of the taxable adult population participated in income tax in 2022. Although the proposed capital gains tax and VAT on exchanges could yield substantial revenue, over-taxation may drive users toward unregulated platforms, complicating tax collection efforts.
Nic Puckrin asserted, “Nigeria has a thriving P2P ecosystem… the government will struggle to collect taxes,” underscoring the difficulties in ensuring compliance. A nuanced taxation proposal could benefit the informal economy; still, success will depend on achieving equilibrium between regulation and innovation.
Strategies such as adopting blockchain analytics technologies may bolster tax enforcement, similar to India’s engagement with Chainalysis. Anti-corruption measures, including digitized tax processes, could also enhance compliance and transparency, ultimately fostering trust in the fiscal structure of the Nigerian crypto market.
Lastly, by synergizing technological advancements with public education on taxation benefits, Nigeria might gradually cultivate an environment conducive to compliance and transparency within its burgeoning crypto economy.
In conclusion, Nigeria’s pursuit of cryptocurrency tax reforms aims to replenish governmental revenues amid economic distress. Despite the ambitious forecasts for growth and efforts to tap the informal sector, significant challenges persist, namely corruption and inadequate policy implementation. The successful introduction of a taxation framework will depend on maintaining a delicate balance between regulatory measures and fostering innovation in the digital economy.
Original Source: cointelegraph.com
