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Dr. Zacch Adedeji, Chairman of Nigeria’s Federal Inland Revenue Service (FIRS), has announced plans to introduce a bill aimed at establishing new tax laws for Nigeria’s cryptocurrency market, valued at an estimated $400 million. The bill is expected to be presented by September 2024, marking a significant step towards regulating the country’s burgeoning crypto sector.
Nigeria’s cryptocurrency market has operated without formal regulation, contributing to concerns about its impact on the national economy. The unregulated market is believed to have played a role in the depreciation of the Naira against the dollar, driven by exchange rate manipulation and the outflow of approximately $26 billion. This has led to the suspension of peer-to-peer trading in the country.
In tandem with FIRS’s initiative, Nigeria’s Securities and Exchange Commission (SEC) has outlined plans to introduce licensing for providers of virtual and digital assets, including cryptocurrencies. The SEC has indicated that these licenses could be issued as early as August 2024, setting the stage for a more structured and compliant digital asset market.
Regulatory Developments and Market Impact
Analysts suggest that regulatory approval could increase participation in the crypto market by providing a clearer and more secure framework for investors and businesses. In June, the SEC launched a program to accelerate the registration process for Virtual Assets Service Providers (VASPs) and introduced amendments to its rules on digital asset issuance, offering platforms, exchanges, and custody.
Emomotimi Agama, Chief of the Nigerian SEC, emphasized the importance of regulating cryptocurrency to protect young Nigerians who are deeply involved in the industry. In an interview with Bloomberg, Agama, a self-described crypto and fintech enthusiast, expressed confidence in the swift implementation of these regulations, stating, “This is going to happen sooner than you think.”
Global Best Practices and Local Adaptation
By introducing cryptocurrency licensing, Nigeria aligns itself with global standards. For example, the United Kingdom initiated regulations in 2020 requiring companies to register under anti-money laundering laws as part of broader efforts to combat terrorism financing. South Africa has also recently introduced a cryptocurrency license, with its Financial Sector Conduct Authority (FSCA) approving over 63 new applications in the second quarter of 2024. France, too, has established a new regulatory framework for cryptocurrencies.
However, some analysts advocate for Nigeria to consider India’s regulatory approach, particularly in dealing with disputes involving major cryptocurrency exchanges. India recently resolved a high-profile conflict with Binance, one of the world’s largest crypto exchanges, which faced allegations of tax evasion and money laundering. The resolution included a US$2.25 million fine imposed by India’s Financial Intelligence Unit (FIU) and the requirement for Binance to register as a reporting entity, allowing it to resume operations.
Analysts see this as a pragmatic model that Nigeria could adopt to address its ongoing regulatory challenges, particularly in its dealings with Binance executives. The recommendation is for Nigeria to implement a similar strategy to resolve disputes and establish a robust regulatory framework that balances enforcement with the continued growth of the cryptocurrency market.
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