My thoughts about Nigeria’s new Crypto Taxation plans

By Vincent Li, Founding Partner at Adaverse

Nigeria is making a major shift in its cryptocurrency policy, moving away from a blanket ban toward a regulated framework designed to capture tax revenue.

The Securities and Exchange Commission (SEC) is leading this transition, introducing new licensing requirements for crypto operations. This marks a decisive change in Africa's largest crypto market.

Taxing DeFi? Unnecessary and impractical. CeFi should be the real focus.

The difference between centralized finance (CeFi) and decentralized finance (DeFi) is crucial when discussing regulation and taxation.

Remember FTX? That’s exactly why CeFi platforms need oversight.

The key distinction is custody of assets:

1. CeFi platforms control user funds, making them clear targets for regulation and taxation. They also integrate with traditional banking systems, enabling fiat conversions.

2. DeFi protocols, on the other hand, simply provide infrastructure for users to interact with their own wallets. They operate purely on-chain, without direct asset custody, making traditional regulatory approaches both challenging and arguably unnecessary.

Regulation isn’t bad, but timing matters

In the long run, regulation can benefit both users and the industry by creating a clear distinction between legitimate platforms and potential scams. Regulated crypto businesses will gain a competitive edge, leveraging their legitimacy to thrive in the market.

Platforms like Ejara, Afriex, and Bitmama could thrive under a structured regulatory environment.

However, the short-term impact depends on tax rates and compliance burdens. If too stringent, it could stifle growth; if too lax, it could fail to provide necessary protections.

Global regulatory approaches: a spectrum of control

Countries worldwide have taken different stances on crypto regulation - some emphasizing consumer protection, others focusing on taxation or innovation.

• Singapore strikes a balance by imposing an indirect 8% tax rather than direct crypto taxes, maintaining oversight without stifling growth.

• Japan, in contrast, enforces a stricter approach, with tax rates reaching 55%, demonstrating how aggressive regulation can impact market development.

The path forward for Nigeria

For Nigeria’s new framework to succeed, a measured approach is essential. Industry experts recommend starting with modest tax rates and clear consumer protections to allow the ecosystem to flourish. This would provide clarity for businesses while shielding users from scams.

Despite past restrictions, crypto adoption in Nigeria remains strong. The success of this policy shift will ultimately depend on the government’s ability to balance revenue generation with innovation, ensuring Nigeria remains a key player in the evolving global crypto landscape.