Nowadays many Nigerians take interest in cryptocurrency. Bitcoin, Ethereum, USDT and numerous other coins have gained popularity in the crypto market as a means of saving money, investing and beyond even sending payments internationally. Crypto traders make day-to-day purchases and some people hold crypto as long-term investment. Due to this, governments in different parts of the world are taking note of crypto. Among the primary questions that governments are raising, is that of how to tax crypto. Tax merely refers to the amount that citizens give to government in order to facilitate delivery of services such as hospitals, roads and schools. However, when it comes to crypto, taxation may not always be as simply understood and Nigerians should orient themselves about it.

Cryptocurrency is not like normal money such as the naira or the dollar. It is non-territorial and it is digital. This renders governments unable to control. When you put money in a bank, the bank is able to report your balance in a bank in the event that it is required. However, when your money is in crypto wallets, it is personal. This privacy is among the reasons why people are in love with crypto but it is also a source of difficulty to the governments that seek to collect tax.

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Arguably, most governments have concluded that cryptos must be taxed much like other assets around the world. In an example, in United States and UK, when the crypto is sold and turned into a profit, tax is payable on the profit. The tax is called taxes on capital gains. Suppose you purchased Bitcoin at 10,000 dollars where you then proceeded to sell it off at 15,000 dollars. The additional 5,000 dollars is your profit and the government expects a part of this. This is equally how tax is levied on the profit you get as a result of selling land/stocks.

In Nigeria the situation is continuing to increase. Due to its popularity, the Nigerian government has begun to take interest in crypto. The government cannot afford to lose out on the collection of tax as money is being made by many young Nigerians via trading, and investments. In 2023, the Nigerian government went as far as presenting a law according to which profits acquired on digital assets, such as crypto, will be taxed. This indicates that Nigeria is taking steps towards right regulation of cryptocurrency. What this means to Nigerians is that in future, you might end up reporting your crypto income when filing your taxes.

Why is the government taxing crypto? The answer is easy Tax is often a primary source of income to governments. Devoid of tax, the government is unable to provide services or employee remunerations. The people are now earning in crypto and the government feels that they should pay as well. The other reason is equity Employees whose earnings are in the form of salaries already contributing through Pay As You Earn (PAYE). Proprietors of business also pay duty on profit. Thus, in the opinion of the government, crypto traders should not be treated differently.

Taxation of crypto is not that straightforward A major predicament is the way to track it. Unlike bank accounts which are linked to BVN in Nigeria, crypto wallets can be made without identity. Solely an email address can be used to open a wallet. This complicates the aspect where the government is to know who owns what. The other issue is that crypto values fluctuate alongside one another on a day-to-day basis. In your case, buying a bitcoin today and seeing the price reduce tomorrow, then you have a loss. Are you still supposed to any pay tax when you did not make money? These are some of the questions which make crypto taxation cloudy.

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To the Nigerians riding crypto it is critical to consider how to remain compliant. With whatever you earn when trading some other day the government will demand you to tell them that you earned profits. It does not imply that all transactions will qualify to pay tax. As an example, upon buying Bitcoin, you can hold it without selling it and there might not be any tax yet because you are not selling and making a profit. However, in case you sell out and make a profit it can be taxed. The same will be the case when you transact business using crypto. Another area in which you may have to treat Bitcoin is that it is part of your income when your business has accepted it as payment.

The other fact that Nigerians should understand is that tax laws in the countries vary. As a Nigerian dealing in international markets, you should also consider rules of Nigeria as well as rules of the exchange where the trade has been registered. Other countries Even in countries to which they do not report, some exchanges report to tax authorities in those countries. Therefore, if you do a lot of trading you should not ignore the idea that nothing stays tucked away forever.

Tax on crypto is feared because some people feel the move will scare investors. The traders are scared that in case the government sets the rules very tight, traders would go to the offshore arenas. However, on the other hand, taxation can even bring respect to crypto. Under some obvious rules, large corporations and foreign investors will have a sense of security to venture into the Nigerian market. That can promote the development of the crypto world. It is similar to when the banks first entered Nigeria. Initially, citizens were scared but as a law was deciphered, the banks became stronger and more significant.

To become ready to taxes on crypto, Nigerians are advised to start maintaining good records. If you sell and buy crypto note the dates, the price, and the profit or loss. Reports can also be downloaded in some trading apps. Elaborating these records will facilitate the process of calculating tax in case the government needs it. It will also cushion you in event of a dispute.

Government must also act in a fair way. Imposing taxation on cryptocurrencies should not turn into an onerous burden that kills innovation. Crypto is an important source of income to many young Nigerians. When the taxes imposed are too high or complex, it can put an end to trading or go to the countries where policies are less demanding. The government of Nigeria should strike a balance between revenue collection and also growth. Clear, simple and fair rules are beneficial to both parties.