Crypto: Nigeria is amending regulations to tax crypto trading, digital assets

The Federal Government of Nigeria is amending regulations to enable it to tax cryptocurrency trading and digital assets. The initiative is part of the combined objective under President Bola Tinubu’s administration’s quest to generate more revenue.

The Nigerian Securities and Exchange Commission (SEC), is working on new rules that “will ensure that all eligible transactions on regulated exchanges are brought into the formal tax net,” the agency said while responding to a Bloomberg email.

The SEC said that it acknowledges the potential for significant tax returns on cryptocurrency which will result in substantial revenue for the country. However, it hasn’t provided a protected estimate of the expected revenue.

Similarly, the agency acknowledged that a bill outlining a framework for taxing cryptocurrency and introducing other levies is under legislative review and is expected to pass this quarter.

The regulator also plans to expand crypto licensing to formal centralized exchanges, while enabling better monitoring and taxation. “We anticipate gradual traction toward centralized exchanges because they will provide greater protections and comfort for investors,” the SEC said.

With a rapidly growing crypto world, the federal government foresees an opportunity to generate tax revenue while increasing oversight of digital assets. For this course, the Tinubu administration has pushed several fiscal reforms since taking office in 2023 to boost government revenue and reduce the deficit.

Recall that before the end of his tenure, former President Muhammadu Buhari signed the Finance Act 2023 into law, introducing tax reforms. The legislative items aimed at modernizing Nigeria’s fiscal framework.

The Act includes a 10% tax on gains from the disposal of digital assets, recognizing the economic potential of cryptocurrencies and ensuring their contribution to the country’s development.

The tax provision will broaden Nigeria’s tax base, foster innovation, and address regulatory challenges. This signifies Nigeria’s recognition of the growing influence and economic potential of digital assets while ensuring that the tax system keeps pace with the evolving financial landscape.

Also Read: Risevest debunks SEC allegation, says it’s legally registered to operate.

SEC and Crypto regulation in Nigeria

SEC is empowered by the Investments and Securities Act (ISA), 2007 to regulate and develop the Nigerian Capital Market and a part of the Act prohibits any expert or professional from carrying on any activity in the Nigerian Capital Market except when the Commission registers it.

The criteria for application include:

• A processing fee fixed at N2 million, applicants must supply evidence of required shareholder funds. 
• A sworn undertaking showing that the owner or the firm has not been convicted for fraud or dishonesty within or outside Nigeria.
• An operational plan and a business model which has a clear or unique value proposition or will contribute to the overall development of the capital market.

In December, the regulator said that some crypto companies that have made regulatory applications may not get its approval due to their inability to meet the requirements. According to the commission’s Director-General, Dr Emotimi Agama, even though all applications submitted are under review, it will be impossible to say all will be approved.

“Certainly, not all of them will meet the requirements. The commission will keep providing clarity to some knotty areas to assist in the process,” he said. 

While reiterating the transparency of the SEC in the crypto regulation, Agama noted that the commission provides fairness for all applicants in its screening process. He added that the registration process was very strict as it is the bedrock of the regulatory impetus. He also added that the approval process will be faster in 2025. 

The commission, in its effort to stamp out pozi schemes, added new laws to combat the challenge of crypto influencers using their popularity to promote spam crypto projects. 

It added that crypto influencers must also disclose to their community that they are paid to promote a digital asset or a service while defaulting this rule could attract a fine of N10 million naira and up to 3 years in prison.

The commission also listed establishing an office in Nigeria as part of the eligibility requirements for companies categorized as Virtual Assets Service Providers (VASPs).