Navigating Cryptocurrency Taxation in Africa

Kayode Babarinde
April 30, 2024
min read

In Africa, cryptocurrencies are on an increase despite all the fundamental difficulties  associated with them. Their widespread adoption throughout the continent follows the  growing youth population and rising interest in digital innovation. Countries such as South  Africa, Kenya, and Nigeria make up the top 10 countries in terms of the adoption of  cryptocurrencies globally, according to a new Chainalysis study. It brings with it another  problem of taxation. The African countries grapple with a variety of unique problems and  opportunities as they include cryptocurrencies in their tax systems. 

The quick growth of Bitcoin adoption in African countries has been brought about by an aging  population and heavy penetration in mobile phones that are keenly embraced. Three of the  top ten countries in the world for the fastest rates of cryptocurrency adoption are Nigeria,  Kenya, and South Africa. This implies that the bitcoin interest and activities being witnessed  in Africa are strong and unmatched. Information from bitcoin exchanges shows that the  trading volumes in African marketplaces have gone up significantly. Peer-to-peer marketplaces  like Paxful have noted a sharp increase in trade volume from customers across Africa. This  would mean that cryptocurrencies are gaining in popularity in Africa as a way to invest and  promote financial inclusion.

Use of Cryptocurrency Across Borders 

In Africa, cryptocurrencies are also being used more and more for making cross-border  payments since they have proved to be cost-effective and efficient alternatives to conventional  remittance methods. The use of cross-border money transfer services across Africa usually  costs about 9%. The going rate for remitting money across various African countries  sometimes involves fees of up to 20% of the full amount transacted. In contrast, remittances  in cryptocurrency can cost as little as 2-3%, and users will save quite a considerable amount.  Besides, cryptocurrency investments are most favoured among African youth since they  consider it to be the right way to invest. According to surveys, a huge number of millennials  in Africa are involved in the cryptocurrency market, which helped further innovation and  adoption in the digital financial sector. 

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Cryptocurrency Regulatory Environment 

Cryptocurrency regulatory environment in Africa is very broad and can change very rapidly. Whereas countries like South Africa and Nigeria have made efforts to define the cryptocurrency tax laws, others are still working on their regulations. The Securities and Exchange Commission (SEC) of Nigeria classifies cryptocurrencies as securities and levies capital gains tax on them. Similarly, the tax laws and provisions applicable to cryptocurrency incomes in a taxpayer's yearly income returns are prescribed by SARS, the Revenue Service of South Africa, which sees cryptocurrencies as intangible assets. This reality boosts the belief that Kenya does consider cryptocurrency as an element to be taxed.

Further rules are also expected. In September 2023, digital service tax of 1.5% on  cryptocurrency transactions became applicable, starting from January 1, 2021. This also  confirms that Kenya recognizes cryptocurrency as a taxable asset. Further, the Kenyan  government has been developing a comprehensive regulatory framework for  cryptocurrencies. This framework is expected to address licensing, taxation, consumer  protection, and anti-money laundering measures. 

All this makes it harder for African businesses and cryptocurrency users to be current with  what their respective countries have required of them, but the changing legal environment is  always developing. To this end, given the continuously changing scenario, one can only ask  that the same ideals and norms of services used by multinational companies be continually  evolving to accommodate these changes in the crypto laws of various countries. 

While this is an excellent ideology, African businesses and users need to keep themselves up  to date with cryptocurrency laws and regulations of their respective countries. Since it is  changing all the time, what is applicable today could be different tomorrow. Therefore, it is  imperative that consultations with a tax expert who has an understanding of crypto taxation  be sought. 

The fact that cryptocurrencies are decentralized poses one of the main obstacles to taxing  them in Africa. Since cryptocurrencies run on blockchain networks as opposed to the usual  financial transactions, mediated by regulated intermediaries, tax authorities find it hard to  efficiently trace and monitor transactions. The problem is compounded by ignorance and  miscommunication between tax authorities and taxpayers. Most people do not realize it, but  profits from bitcoin investments are taxable; therefore, the unintentional noncompliance  increases when people tend to be ignorant of such a fact. Similarly, without proper resources  and knowledge to investigate blockchain transactions, it may be problematic for tax  authorities to find out tax responsibilities with accuracy. 

Chances for Originality 

Nevertheless, blockchain technology is offering an opportunity for innovation in both tax  administration and compliance, which will boost the face of African tax bodies. Tax authorities  will improve their traceability of Bitcoin transactions through the incorporation of blockchain based technologies. Furthermore, some African countries are realizing how cryptocurrencies  may be a catalyst for promoting financial inclusion and economic growth. Governments may,  therefore, support investment in the digital economy by stimulating interest and innovation  while ensuring adequate compliance procedures are put in place within this favourable regulatory environment.

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Overall, cryptocurrency tax in Africa is a very complex and diverse subject that needs a  methodical approach by regulators, taxpayers, and politicians alike. Even with problems like  unpredictability in the regulations and technological obstacles still persisting, there are  opportunities for creativity and cooperation toward finding good solutions. African countries  will proactively need to come together with stakeholders and establish transparent and  cohesive tax systems that encourage compliance while developing economic growth and  innovation in the country. They will be able to attract investments within the crypto sector,  promoting development and, in turn, contributing to economic growth and development  across the continent.

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