Nigeria is poised to introduce comprehensive legislation aimed at regulating the cryptocurrency industry, signaling a major shift in its approach to the burgeoning sector. This move comes as part of the government’s broader strategy to modernize revenue administration and reduce the nation’s dependency on oil revenues.
In 2024, the Nigerian government launched a series of crackdowns on the cryptocurrency sector, attributing the naira’s volatility, tax evasion, and terrorism financing to crypto activities. Despite the lifting of the official ban on cryptocurrency transactions in December 2023, the government has continued to target crypto operators, raising concerns within the industry.
However, in a significant policy turnaround, Zacch Adedeji, Chairman of the Federal Inland Revenue Service (FIRS), announced that an executive bill is being drafted to regulate cryptocurrency operations in Nigeria. The bill, which is expected to be transmitted to the National Assembly soon, seeks to establish a legal framework for the cryptocurrency ecosystem, as part of a broader overhaul of the country’s revenue collection system.
“We cannot run away from the cryptocurrency ecosystem because it is the in-thing. But as it stands in Nigeria today, there is no law that regulates cryptocurrency operations,” Adedeji stated. “We need a law that regulates that area of our economy. This is why we are having this engagement with the legislators. We will regulate it in a way that is not injurious to the economic development of Nigeria.”
The proposed legislation aims to harmonize revenue collection, simplify tax laws, and address existing gaps in the nation’s revenue framework. “Part of what we intend to achieve with this is to harmonize revenue collection, making tax laws very simple to understand and to be in tune with our current realities,” Adedeji emphasized. He noted that some existing laws, such as the Stamp Duty Act of 1939, are outdated and do not reflect the realities of today’s digital economy.
The government’s focus on the cryptocurrency industry is driven by the sector’s rapid growth. Nigeria is one of the largest peer-to-peer (P2P) crypto markets globally, with transactions totaling $56.7 billion between July 2022 and June 2023, according to Chainalysis, a global blockchain platform. This represents a nine percent year-over-year growth, underscoring the significance of the sector to the Nigerian economy.
In July 2024, KuCoin, a cryptocurrency platform, announced that it would begin collecting a 7.5 percent Value-Added Tax (VAT) on all transaction fees for users whose Know Your Customer (KYC) information is registered in Nigeria. The move by KuCoin highlights the growing acceptance of taxation within the crypto sector, albeit in the absence of a formal regulatory framework.
Chimezie Chuta, founder and coordinator of Blockchain Nigeria User Group, pointed out the legal conundrum of taxing an unregulated industry. “They cannot collect tax from an unlicensed entity,” he remarked, suggesting that the introduction of formal regulation is inevitable.
The Securities and Exchange Commission (SEC) of Nigeria, which has been tasked with overseeing the cryptocurrency industry following the Central Bank of Nigeria’s (CBN) decision to lift its ban in December 2023, has been actively working on establishing a regulatory framework. The SEC recently announced its intention to monitor the trading activities of Virtual Assets Service Providers (VASPs) on a weekly and monthly basis. This initiative is detailed in the SEC’s document entitled “A Framework on Accelerated Regulatory Incubation Program for the Onboarding of Virtual Assets Service Providers (VASPs) and other Digital Investments Service Providers (DISPs).”
The upcoming executive bill represents a critical step in Nigeria’s efforts to harness the economic potential of the cryptocurrency market while ensuring that it contributes to national revenue in a structured and regulated manner. As the country moves towards formal regulation, the impact on the industry, investors, and the broader economy will be closely watched.
