Crypto Assets, the SEC and Tax – On ‘Work it Out’ – with Vivian

Here is my take on the new SEC’s classification of Crypto Assets as ‘Securities’.

Cryptocurrency/ Crypto Assets are now considered as ‘Securities’ in Nigeria, to be regulated by the Securities and Exchange Commission (SEC), unless, according to the SEC, this is proven otherwise by the issuer.

I recall that recently our firm (Vi-M Professional Solutions) needed to digitize financial and accounting processes for two different Nigerian companies – one involved in buying and selling of Cryptocurrency and the other, operating a digital wallet system. 

There is currently no specific accounting standard that caters to Crypto Assets – a hugely growing aspect of the financial world. 

We had to critically review the financial processes of each company, identifying the littlest value points and analysing the hugely peculiar nature of transactions, while brainstorming all possible provisions/ intricacies of various International Financial Reporting Standards (IFRS), in order to determine the appropriate accounting classifications for each of the companies’ operations. 

We narrowed things down to simply ‘Inventory’ for the 1st company and ‘payables’ (reduced or increased by the digital wallet spending/ top-up of the customers), for the digital wallet operator.

Recognising that the world of Cryptocurrency / Crypto assets and its ramifications are very complex – seeking to defy many accounting and Tax! classifications/treatments, the SEC has now placed the burden of proving that it is not a ‘security’ on the operators/ issuers of Crypto assets, but not without making them to at least fulfil the first part of a new (and yet additional) compliance obligation of an ‘initial assessment filing’.

Has the Financial Reporting Council of Nigeria agreed with the SEC on this speculation of accounting / financial classification for Crypto assets? This is inadvertently a call for Crypto assets operators to actually ‘name’ what it is they are doing and on their own costs (most probably with the help of their consultants), help the Nigerian regulators determine the appropriate accounting classifications for their distinct operations. 

I had also wondered how the Nigerian tax authorities would capture the taxes from the digital currency world, with all its intricacies (e.g. a business’ major transactions can be domiciled and run from a digital wallet system and no amount of backend scrutiny on the company’s bank account statements or BVN links can reveal the quantum of transactions it is engaging in from its digital currency world). 

Nigerian tax authorities are still grappling with navigating business automations, tech and online/digital trades…what is the ‘game’ going to be like with the Crypto Assets?

And the issue of Stamp Duty and other taxes determined from bank deposits/ bank turnover, what if there are no bank deposits?.

Further, ‘Securities’ are excluded from the definition of ‘goods’ for Value Added Tax (VAT) purposes in Nigeria. In addition, certain accounting classifications of Crypto Assets would not be subject to income taxes (at 30%) but only Capital Gains Tax at 10%.

Perhaps the Nigerian tax authorities should also look for one blanket ‘Tax-revenue-beneficial’ classification and give to Crypto assets, then place the burden of proving otherwise on the Crypto owners/ issuers!

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