Revenue-to-GDP ratio in Nigeria is estimated at about 7.5 per cent, which is low when compared with other emerging countries.
According to experts, Nigeria is not earning sufficient revenue to bolster its spending and economy.
As oil revenues dry up, experts in the cryptocurrency space have pointed out that government regulation of digital assets will ensure that the industry is correctly taxed and levied, thus increasing government income.
On February 5, 2021, the Central Bank of Nigeria issued a circular to banks directing them to stop transacting with individuals and entities dealing in cryptocurrency.
While announcing the ban, the apex bank directed banks to close the accounts of customers involved in crypto transactions.
It said, “Further to earlier regulatory directives on the subject, the Bank hereby wishes to remind regulated institutions that dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges is prohibited.”
Experts noted that this move by the apex bank was keeping the nation from benefiting from tax revenues from the crypto space.
They stated that by banning the sector, the government would neither regulate nor tax digital currencies.
The CBN has had a rough relationship with cryptocurrency, putting out warnings before eventually banning the digital currency.
In 2017, the CBN had warned financial institutions that digital currencies were largely used in terrorism financing and money laundering.
In 2018, the apex bank warned people investing in crypto that they did so at their risk as they were not protected by the law.
But globally, the digital curency is fairing well.
As at 8:40 am on Monday, the global crypto market was worth $1.75tn – about five times Nigeria’s Gross Domestic Product.
According to the World Economic Forum, there are 18,142 cryptocurrencies, 460 crypto-exchanges, with a market cap of about $1.7tn.
Every 24 hours, $91bn worth of cryptos are traded, with most of them being Bitcoin or Ethereum. The size of the crypto industry, both locally and globally, is massive.
The world has since turned a digital corner, and since everything is now digital, it is becoming clearer that legal tenders must evolve.
The 2021 crypto ban set Twitter on flames as young Nigerians took to the social networking platform to voice their frustrations about the move.
@SirLeoBDasilva tweeted, “During a pandemic where every country is looking at how to invest in crypto, Nigeria is banning crypto? Are we run by people living in this world at all?”
@joe_blaze98 tweeted, “Just when Nigeria is second in what is progressive for the first time, they decided to ban it.”
@El__hombre__ tweeted, “Wait wait! So you make a decision that might destroy millions of lives and enforce it without notice or reason! No be country be this sha, na war zone.”
Speaking to our correspondent, Korede, a cryptocurrency trader, said he woke up to a buzzing phone on the said day as his crypto WhatsApp group was agog with news of the Central Bank of Nigeria’s ban on cryptocurrency.
According to him, most people in the group thought it was fake news until they started seeing it on verified news outlets. He said, “There had been speculations of a ban prior to that day, but no one expected them to do it. This is a source of income for a lot of young people.
“Before the ban, my friends and I could move funds from our bank accounts to our crypto wallets directly and safely. Everything changed after the ban.”
Korede stated that the ban started a chain of events in the crypto industry, informing new consumer behaviour. He said, “The ban ensured that we cannot allow our bank accounts to remain connected to our crypto wallets or use bank cards to buy or sell.
“Although I was already using a peer-to-peer platform before the ban, its usage increased after the ban. Also at some point, we discovered that P2P wasn’t safe anymore. Some unknown persons pretending to be good vendors were said to report crypto traders’ bank accounts after a successful trade with them.
“These guys join the P2P platforms just to monitor those that still trade crypto. So, the safest way now is to buy from known friends.”
According to him, many crypto traders now bought directly from people they knew, who had crypto in their wallets before the ban. He said the industry was now being regulated by word of mouth, as traders only dealt with sellers or traders they had links to.
“So, we just transfer coins and then receive payment between friends. And if my friend isn’t buying, he will refer me to someone who will. The same goes for me if I’m in need of crypto assets. I make my request known and then any vendor that has will state his rate and then we will deal,” he added.
Korede explained that traders had devised a means to circumvent the government’s directive, and since crypto traders were no longer in the formal financial sector, the government had been missing out on new sources of revenue.
He added, “Let me explain what they are missing out with an example. Some countries like the US now have Bitcoin machines where you can use your dollars to buy BTC or send BTC to others. With this, the government generates revenue/profits. They charge every transaction on those machines.”
In 2021, Paxful, a crypto P2P firm, said Nigerians traded at least N316.9bn in bitcoin in 2021 despite the CBN ban. According to the firm, there were over six million crypto transactions and 16,000 transactions per day from Nigeria on its platform in 2021.
The company said, “Nigeria is our largest country based on trade volume — Over $760m in trade volume last year.”
A report by another crypto platform said about 33.4 million Nigerians trade or own crypto assets. In its 2021 Global Crypto Adoption Index, Chainalysis, a global blockchain analytics company, ranked Nigeria as the 6th leading country in the world in terms of crypto adoption.
The cryptocurrency market in Nigeria and other African countries grew by 1200 per cent in 2021. According to the International Monetary Fund, low-income countries were at the forefront of crypto adoption, noting that countries in this region increased their trading volumes in crypto exchanges in 2021.
According to the Founder/Co-ordinator, Blockchain Nigeria User Group, Chimezie Chuta, the government effectively cut itself from benefiting from the crypto boom by banning digital currencies.
He said, “The issue of regulation has been a standing battle between Nigerian legislators and policymakers, and the blockchain and crypto industry. And that has been going on for probably three years, and the Securities Exchange Commission had an intent to understand it.
“Unfortunately, in February 2021, the Central Bank of Nigeria brought out that circular that restricted financial service providers from interacting and dealing with crypto entities. But that did not in any way diminish the adoption of crypto assets in Nigeria.”
He stated that since digital assets were technologically driven, they would not be restricted by marketplace limitations. They could take on their own forms and whatever action the regulator took would not affect them since the market was always open.
Chuta added, “In my opinion, not regulating is a major downside to an economy that wants to shore up income through tax and Foreign Direct Investment. It is counterproductive not to regulate a burgeoning sector like crypto.
“The result is that the nation is losing a lot of money, a lot of revenue that could have come in as VAT. Because if you do not regulate, you cannot tax. See the figures from Paxful, which is the biggest P2P company in Nigeria, or Binance which is the biggest blockchain platform in Nigeria.
“They do transactions but without regulation, you cannot adequately determine what tax would have accrued. This counts as a loss to the nation in terms of revenue. In most cases when we try to engage with either SEC or CBN or any of the other regulatory bodies, we tell them that not regulating is bad because there is nothing that can sufficiently stop the activities of the operators. And the nation is losing revenue if it not licensing operators or taxing their profits.”
According to him, to effectively regulate blockchain and crypto, it was important to understand them and how they operated.
Chuta stated that the technology of digital assets should be regulated by a national agency for technology. He said the blockchain, which also handles digital assets, could become a financial instrument for fundraising and have interactions with the Nigerian capital market.
He added, “In that aspect, we have the SEC as the authority that should be able to regulate it. In the currency and digital currency aspect of it and any aspect where the technology interacts with monetary issues, the CBN ought to regulate since it is functioning as a financial instrument also.”
Chuta further said without regulation, institutional investors would not directly play in the crypto ecosystem since they would not trade in an unregulated sector. According to him, institutional investors often brought large sums of money to the table, and this money could easily scale the ecosystem.
The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, had previously admitted that the Federal Government had a revenue problem.
According to her, the government was struggling to raise enough revenue to fund its expenditure. To increase revenue, Ahmed recently announced an increase in the taxation on carbonated drinks.
She said, “To further enhance independent revenue generation, government aims to optimise the operational efficiencies and revenue generation focus of the government-owned enterprises.”
As oil revenues continue to dwindle, the government has started widening its net to other non-oil revenue sources. Recently, Meta announced that it would be charging a 7.5 per cent value-added tax on sales of ads to advetisers in Nigeria.
This is consistent with the government’s plan to tax digital transactions. If the government had applied its 7.5 per cent VAT on Paxful’s revenue, it would have earned about N23.77bn, which is more than the 2020 individual Internally Generated Revenue of more than 24 states in the nation.
Central banks are starting to explore digital currencies as a response to digital assets.
According to a report by PricewaterhouseCoopers, about 80 per cent of central banks were considering launching digital currencies or had already done so. The CBN launched its digital currency, the e-naira, in October 2021.
While this is laudable, crypto assets have changed the international monetary and financial system in profound ways, according to the IMF.
The crypto economy has led to the development of an alternative financial and technological infrastructure that is global, open-source, and accessible to all who have access to the internet, regardless of nationality, ethnicity, race, gender, and socioeconomic class, according to the World Economic Forum.
Prior to the CBN’s announcement, SEC had attempted to provide regulatory certainty within the digital asset space as a result of the growing volume of reported flows. It had described digital assets, including crypto assets, as securities, and said it would regulate them.
With a market capitalisation that is more than the GDP of many countries, experts have said it is important for regulators in the nation to reconsider the ban on crypto, especially since the market has responded with increased transactions despite the ban.
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