Introduction
Technological advancements, particularly the rise of the internet, has transformed how we work, learn, interact financially and store wealth. In emerging markets like Nigeria, financial systems, have undergone a rapid evolution with the advent of Fintechs, mobile banking, and digital payments. These innovations have expanded access to financial services, breaking down barriers associated with the traditional banking system. Through digital platforms like mobile banking and payment systems, millions of Nigerians now transact, save, and invest with ease. In 2020, electronic transactions via mobile & USSD grew by 82%, reaching ₦1.69 billion compared to ₦928.86 million recorded in the previous year.1 By 2023, the value of electronic transactions had further skyrocketed by 66%, growing from ₦387 trillion in 2022 to ₦664 trillion.2 This rapid digital adoption, coupled with a youthful population eager to embrace emerging technologies, set the stage for the rise of cryptocurrencies as an alternative financial tool.
Cryptocurrency has been adopted as an alternative means of conducting financial transactions due to its decentralized nature and associated low transaction fees3 4. The rise of cryptocurrency in the country has fueled significant growth in peer-to-peer (P2P) trading activities. According to reports by the Director General of the Securities and Exchange Commission,5 the Nigerian cryptocurrency market was valued at over $400 million in 2021, making it the second largest globally. In 2022, Nigeria emerged as the top country for cryptocurrency usage and ownership, with 45% of the population actively engaged in digital assets.6
Despite its popularity, the use of cryptocurrency in Nigeria was met with significant controversy. The Central Bank of Nigeria (CBN) cited concerns over the use of cryptocurrency as an instrument for money laundering, means of tax evasion, terrorism financing and introduced some restrictions to limit its use including outright ban on cryptocurrency transactions. Although the ban on cryptocurrency transactions was relaxed in December 20237, the CBN has continued to enforce regulations8, including disciplinary actions against some platforms for non-compliance9.
Notwithstanding the restrictions and regulatory actions, existing regulatory frameworks such as the SEC's guidelines and the taxation of digital asset under the Finance Act 2023 have played a key role in bringing Nigeria's cryptocurrency market under formal regulation. This also aligns with global practices in developed countries 10 11 like the United States, Japan, South Africa, United Kingdom that have embraced cryptocurrencies and established clear regulatory frameworks that support its use. For instance, the South African government has issued licenses to over 248 crypto exchanges and also established a framework to guide the operations of these exchanges12. Further, regulators in the UK have also implemented stringent licensing requirements for crypto firms and introduced measures like the Property (Digital Assets) Bill to formally recognize and regulate digital assets13. These regulations have helped not only to mitigate tax evasion risks but also allowed their governments to capitalize on the sector's growth through tax revenue generation. In this article, we have discussed the evolving landscape of cryptocurrency in Nigeria, the global implementation of the Crypto-Asset Reporting Framework (CARF), and the next steps for its adoption in Nigeria.
Current State of Cryptocurrency in Nigeria
Nigeria's cryptocurrency market has shown remarkable resilience. Between 2019 and 2022, cryptocurrency usage increased by 17%, with over 34 million people adopting digital currencies.14This growth has established the Country as a key player in the global cryptocurrency market. In December 2023, the regulatory landscape took a significant shift,15 following the relaxation of Central Bank of Nigeria's (CBN) ban on cryptocurrency transactions. This shift is accompanied by other key initiatives aimed at integrating digital assets into the formal economy such as:
- Introduction of the e-Naira, Nigeria's Central Bank Digital Currency (CBDC)16 in 2021. The e-Naira which is controlled by the CBN uses digital ledgers to record transactions. Unlike decentralized cryptocurrencies, e-naira is centralized and allows for oversight of all transactions. However, concerns about privacy, governmental control, and the e-Naira's inability to hedge against inflation may have limited its adoption.17
- Introduction of taxation of digital assets, through the Finance Act 2023, to formalize taxing of capital gains from disposal of digital assets and crypto-related activities.
- Granting of operational licenses by the SEC to Virtual Asset Service Providers (VASP), such as Quidax and Busha18 in August 2024, creating a pathway for regulated crypto exchanges in Nigeria.
- Announcement of plans by the Federal Inland Revenue Service (FIRS) Chairman in August 2024 to introduce specific tax regulations for cryptocurrencies, to ensure compliance and revenue generation. This served as a precursor to the income tax provisions on digital assets in the recently signed Nigerian Tax Act. 19
The Nigerian government also recently signed into law the Investments and Securities Act (ISA) 2025, which recognizes bitcoin and other digital assets as securities, further formalizing the scope of crypto assets in Nigeria.
Following these recent developments, the cryptocurrency market in Nigeria has now grown into billions of dollars' worth of transaction values. According to CoinmarketCap, the market processed approximately $59 Billion in transactions20 between July 2023 and July 202421. This remarkable growth presents a significant opportunity for more tax revenue generation. However, the challenge remains the anonymity of users and inability to link transactions to the owners. Currently, public data on the actual tax revenues collected by the FIRS from digital assets disposals based on the Finance Act 2023 is unavailable at the time of writing this article. Nonetheless, there is a clear potential to optimize revenue collection under the existing framework.
Global Implementation and Reporting Requirement of Crypto-Asset Reporting Framework (CARF)
The global financial landscape is also evolving to address the challenges posed by the rise of digital assets. The Organization for Economic Co-operation and Development (OECD) in 2022 introduced the CARF to enhance international tax compliance with respect to reporting requirements for crypto assets. CARF is designed to facilitate the automatic exchange of information on cryptocurrencies between countries to enhance tax transparency and tackle tax evasion risks related to digital assets and cryptocurrency. Key highlights of the crypto-asset reporting framework and the environment in which it will operate are discussed below:
- The framework builds on the success of the Common Reporting Standard (CRS) on traditional financial assets, which has not only been instrumental in the exchange of financial information globally but also driven significant revenue generation for many countries. Under the CARF, crypto-asset service providers (CASPs), defined as any individual or entity that facilitates crypto-assets transactions as part of their business, will be required to collect and submit detailed information on crypto-asset users and transactions to their local tax authorities, who in turn share the data with relevant jurisdictions under the automatic exchange agreement.
- The scope of reportable assets under CARF includes stablecoins, crypto-based derivatives, non-fungible tokens (NFTs), and other digital assets that can be held and transferred without the involvement of traditional financial intermediaries. CARF applies broadly to both custodial and non-custodial service providers. A custodial service refers to a service in which the CASP holds and manages the user's private keys, while non-custodial services allow users to retain full control over their private keys and assets. Decentralized platforms such as peer-to-peer exchanges are also captured under the framework if they provide services that enable users to exchange or transfer crypto-assets in the ordinary course of business.
- For custodial service providers, the reporting obligation is quite straightforward. Since the CASPs hold and manage users' wallet, they exercise control over the crypto-assets on behalf of their customers, as such, they are expected to have complete visibility over user identity and transaction activity. The CASP is to report both user identification data and transaction details. For individuals, this includes the full name, residential address, date of birth, tax identification number (TIN), and jurisdiction of tax residence. For entities, the legal name, jurisdiction of incorporation or operation, and Tax identification numbers must be reported. In the case of passive entities, information on controlling persons must also be disclosed.
- In addition, the reporting requirement extends to a range of crypto-asset transactions, including exchanges between relevant crypto-assets and fiat currencies, exchanges between one or more types of relevant crypto-assets, and transfers of relevant crypto-assets. These transfers include movements to non-custodial wallets, as well as retail payment transactions involving the use of crypto assets in exchange for goods or services, where the value exceeds USD50,000. 22
- On the other hand, non-custodial and decentralized service providers that allow users to retain control over their private keys and digital assets, are not exempt from CARF. The OECD has clarified that while these providers may not have direct access to user information or control over assets, they are still expected to comply with reporting obligations under CARF. The specific due diligence procedures and compliance expectations for these types of service providers will be further detailed and communicated by the OECD.
- Countries like the United Kingdom, United states, Australia, Belgium, Brazil, Bulgaria, Canada, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, South Africa, Spain, Sweden, and some traditional financial offshore havens such as the United Kingdom's Overseas Territories of the Cayman Islands and Gibraltar have pledged to implement CARF by 202723.
- Some of these Governments have begun to take preparatory steps for the implementation of CARF. For instance, the UK and Brazil have conducted public consultation and open debates to get a public view on the implementation of the cryptocurrency asset reporting framework24 25. The Japanese National Tax Association (NTA) has also issued clear guidelines on cryptocurrency taxation to align with CARF principles.26 These developments signify a coordinated global effort to standardize the reporting of cryptocurrencies and promote global tax transparency.
Next steps for Adoption – Impact on Key Stakeholders
In November 2024, Nigeria committed to implementing the CARF and to commence exchange of information by 2028. The successful adoption of the cryptocurrency reporting framework will require significant effort from stakeholders, such as the tax authorities, financial institutions, and taxpayers to effectively regulate and manage crypto assets. We have provided below, details of the expectations from stakeholders and how to get ready for the implementation in Nigeria.
Tax Authorities
The introduction of CARF will provide the tax authorities with enhanced visibility into cryptocurrency transactions. By bringing gains and income from taxable cryptocurrency activities into the tax net, CARF is expected to increase government revenue and contribute to overall economic growth. For example, if a Nigerian uses a crypto exchange in a reportable jurisdiction to trade Bitcoin and makes a capital gain of $10,000, that transaction would typically go unreported under current systems if the exchange is not obligated to report to Nigerian tax authorities. However, under CARF, the exchange, as a registered CASP would report the user's transaction details, including their TIN, address, and the value of the transaction, to the tax authorities. This information would be automatically shared with the FIRS who will ensure the individual's gains on crypto transactions are properly taxed.
To maximize the benefits of this framework, Tax authorities must develop and publish a comprehensive regulation that outlines the requirements for reporting cryptocurrency transactions. This regulation/guideline should clearly define reporting obligations, compliance timelines, and the penalties for non-compliance. By doing so, taxpayers will gain clarity on their responsibilities with respect to crypto-asset reporting.
Robust infrastructure and IT systems must be implemented to handle the complexities relating to cryptocurrency transactions. These systems may be integrated with existing reporting frameworks on Common Reporting Standard (CRS), to enable efficient reporting of both traditional and digital financial assets and improve overall tax compliance efficiency.
In addition, given the sensitive nature of cryptocurrency data, security and data protection should be prioritized. The tax authority is expected to implement robust cybersecurity measures to protect taxpayer information against unauthorized access. Global coordination and adoption of best practices from other countries will also help to strengthen the framework and its implementation.
Taxpayers
The adoption of CARF represents a significant shift for taxpayers. Historically, many individuals and businesses have relied on the anonymity of cryptocurrencies to evade tax obligations. However, with the introduction of CARF, detailed transaction reporting will bring more gains and income from cryptocurrency activities to the fore and consequently into the tax net. The increased transparency may result in significant tax liabilities for taxpayers, in the short run, especially those who have not previously been disclosing their gains in the past. However, in the long run, it will lead to improved tax responsibility by the citizens and greater tax revenues to the government that can lead to growth and development of the economy.
To adapt to this new era of crypto-asset reporting, taxpayers must take proactive measures to comply with the CARF requirements. This includes maintaining accurate records of all cryptocurrency transactions and ensuring timely compliance with reporting obligation to avoid penalties. Taxpayers with undisclosed historical gains should engage tax advisors to regularize their tax affairs to mitigate potential penalties.
Financial Institutions
Financial institutions (FIs) are poised to play a pivotal role in the implementation of CARF. FIs may be appointed by the FIRS to act as agents for reporting of identified reportable accounts.
To fulfill these responsibilities, financial institutions must establish monitoring systems to effectively track and report cryptocurrency transactions. It is also important to implement strong cybersecurity measures to protect customer data. FIs are expected to collaborate with tax authorities to understand reporting requirements and address compliance issues.
Beyond compliance, FIs have a critical advisory role to play. They are expected to educate and encourage their clients to meet their tax obligations, ensuring that gains or income from cryptocurrency activities are properly disclosed and taxed. Failure to do so could expose clients to significant financial liabilities, including penalties and interest.
Conclusion
The implementation of CARF in Nigeria represents a pivotal moment in the Country's journey towards a more transparent and inclusive digital economy. As one of the largest adopters of cryptocurrencies, the country is uniquely positioned to harness the benefits of cryptocurrencies to promote financial inclusion, drive innovation, and support economic growth.
The successful implementation of CARF will depend on a coordinated effort among tax authorities, financial institutions/service providers and taxpayers. Ultimately, the CARF presents a unique opportunity for Nigeria to not only boost tax revenue but also strengthen its financial system and position itself as a leading player in the global digital economy.
Footnotes
2. E-payment transactions' value rises 66% to N664.21trn in 2023 - Vanguard News
3. Crypto in Nigeria - Surge in Adoption and Regulatory Shifts
4. 5 REASONS WHY CRYPTOCURRENCY IS BOOMING IN NIGERIA - Dart Africa
5. Nigeria's cryptocurrency market worth over $400m — SEC DG - Vanguard News
6. Nigeria ranks number one globally for cryptocurrency usage and ownership | Business Insider Africa
8. CBN hits banks with N1.31bn fine for flouting directive on crypto accounts | TheCable
9. Central Bank of Nigeria Faults Binance for Carrying out Unauthorised Transactions - CoinCodeCap
10. Where is Crypto Legal vs Illegal, Around the World | CoinGecko
11. Japan Cryptocurrency Tax Guide 2024 - Kasō tsūka | Koinly
13. New bill introduced in Parliament to clarify crypto's legal status - GOV.UK
14. Nigeria ranks number one globally for cryptocurrency usage and ownership | Business Insider Africa
16. CBN Speaks on Why It Introduced eNaira, Steps up Effort to Boost Cash Supply - Legit.ng
18. Nigeria's SEC grants provisional crypto licences to Quidax and Busha | TechCabal
20. 2024: When Countries Stopped Fighting Crypto | CoinMarketCap
21. Sub-Saharan Africa: Nigeria Takes #2, South Africa Grows Crypto-TradFi
22. Crypto-Asset Reporting Framework XML Schema | OECD
23. Collective engagement to implement the Crypto-Asset Reporting Framework - GOV.UK (www.gov.uk)
26. Japan Cryptocurrency Tax Guide 2025 - Kasō tsūka | Koinly
The opinion expressed in this article is solely personal and does not represent the views of any organization or association to which the authors belong.
