The digital economy is generally defined to constitute any economic activity supported or enabled by digital technologies such as the internet, mobile devices, and other digital tools. It refers to the network of transactions, interactions, and processes that provide value to customers and society by utilizing digital inputs such as data, infrastructure, goods, and services. All businesses that create or use digital products, services, and tools to meet the needs of their customers or clients are included in the digital economy. It is therefore limitless, ever-changing, data-driven and mobile. This economy tends to combine the best of humans and machines.

The existing taxing framework in Nigeria has just recently started receiving significant attention with the advent of the Finance Acts that appear to provide cosmetic changes to some of the ancient legislative provisions that have since existed to tax transactions that were commonplace at the time the relevant taxing Acts were promulgated. It may therefore be a case of new wine in old wine skin, or old wine in new wine skin, where any nation attempts to solely rely on its existing taxing framework in an economic environment that constantly combines the best of humans and machine to facilitate business and governmental transactions. Interestingly, the impact of technology is fast spreading to engulf the entire facets of the Nigerian economy, so much so that even the Independent National Electoral Commission has relied on technology in its electoral processes in the past electoral cycles- first with the introduction of Voters' Card Readers and now, the Bimodal Voter Accreditation System (BVAS).

This article seeks to examine the taxation of transactions involving uncommon digital assets such as Cryptocurrencies and Non-Fungible Tokens (NFTs) in Nigeria, the current and potential future implications of holding such assets and the imminent changes to our taxing legislature with implications for digital asset creators, buyers and sellers.

Digital Assets – What are these Assets?

As defined by the framework of the International Accounting Standards Board (IASB), assets are resources controlled by an entity as a result of past events from which future economic benefits are expected to flow to the entity. In this regard, we can define digital assets as any digital resource controlled by an individual or entity from which economic benefits can be realized and the value can be measured. Digital asset can generally be anything that is created and stored digitally, is identifiable and discoverable and has or provides value. As technological advancements become more and more integrated into our personal and professional lives, digital assets have grown in popularity and value.Considerations have since enlisted videos, images, data and written contents as digital assets having valid ownership rights. Previously, organizations owned and used digital assets such as data or scanned documents to generate value. However, with the invention of blockchain and introduction of Cryptocurrency, digital assets have since been redefined. Anything in digital form became something that could be used to create value via the concept of tokenization on a blockchain.

In order to be effectively classified as a digital asset, an asset must first have the potential to create value by being used in a way that spins value for the owner. The owner of the digital asset should then be able to transfer his/her ownership to someone else via purchase, gifting, or other means. Digital assets have become so important that new vendors and service providers have emerged for Digital Asset Management (DAM). DAMs provide businesses with digital security by allowing them to securely store, organize, and quickly access their digital assets.

Cryptocurrencies and NFTs

Cryptocurrency (Crypto) is a type of digital currency that can be classified as a digital asset. All Cryptocurrency transactions are recorded on a blockchain. Bitcoin is the most popular Cryptocurrency, and all other Cryptocurrencies are referred to as altcoins. Crypto is an alternative to fiat currencies and can be used as a means of exchange. Although Crypto is not a legal exchange in Nigeria, it is in some other countries. Nonetheless, Cryptocurrency is highly volatile and can fluctuate in value. It is also unregulated, and is generally not issued by a central authority, making it difficult and somewhat impossible to regulate through government intervention or manipulations.

Non-Fungible Tokens (NFTs) are one-of-a-kind digital files that have been tokenized on the blockchain. The concept of tokenization simply refers to putting such things into circulation by converting them into a digital token that can be used on blockchain applications like NFT marketplaces or blockchain games. Each NFT has its own set of identifiers, history, and value. Rarity, utility, and consumer interest are typically the determining factors of an NFT's value. Art, trading cards, and blockchain game items are the most popular NFTs. The value of NFTs is also volatile, similar to the value of tangible art, and the determination of the exact value of any NFT may be difficult.

Taxation of Digital Assets in Nigeria

As at today, there are no existing laws specific to the taxation of digital assets in Nigeria. However, the Finance Bill, 2022 ("the Bill"), which is yet to gain the Presidential assent and be signed into law, has proposed indicative guidelines that Nigeria, like some other countries, is set to commence the taxation of digital assets.

According to the Bill, it proposes to amend Section 3(a) of the Capital Gains Tax (CGT) Act and provides that: forms of property shall be assets for the purposes of this Act, whether situated in Nigeria or not, including options, debts, digital assets and incorporeal property generally".

Based on the above proposed provision, all digital assets which include Cryptocurrencies and NFTs are being considered as property or asset, and will be chargeable assets, thereby subjected to tax under the provisions of the CGT Act. The Bill indicates a commencement date of 1st January 2022, which might mean the provisions of this Bill will have a retrospective application.

Although, the Bill has not been signed into law, it potentially implies that every individual or company, whether registered in Nigeria or a Non-Resident Company (NRC) that makes any gains on disposal of digital assets, including Cryptocurrencies and NFTs, will be subjected to tax in Nigeria. Capital Gains Tax at a flat rate of 10% shall apply to all gains, after all allowable deductions or expenses incurred in the process of the disposal of the asset have been adjusted. More importantly, the buyers and sellers of cryptocurrencies shall have the obligation to report every Cryptocurrency transaction and disposal made by them in the particular year of assessment.

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