In today's digital age, blockchain and cryptocurrency are spearheading a financial revolution. Imagine, if you will, a world where transactions are instantaneous and transparent, a promise delivered by blockchain technology. Global custodians are predicting that 5% to 10% of all assets (ranging from securities to illiquid assets) will be tokenised (digitally represented) by 2030. Cryptocurrencies, the leading application of blockchain, showcase a future where money is not just digital but decentralised, giving individuals control over their financial futures. Cryptocurrencies could be acquired through mining; a process where complex algorithms verify transactions and reward miners (people who use computational power to solve complex mathematical problems, that are necessary for validating and recording transactions on a blockchain, and are rewarded with newly created cryptocurrency and transaction fees). Increasingly, investors can buy cryptocurrencies using local currency on exchanges, and goods and services can also be traded for digital coins. This digital revolution is reshaping the conventional financial landscape, presenting both disruptions and opportunities. Navigating the world of cryptocurrencies can feel like trying to read a map in a foreign language, exciting but a bit confusing!
In November 2019, the Bank of Tanzania (BoT) issued a public notice reaffirming that the only acceptable legal tender in Tanzania is the Tanzanian Shilling. It also advised the public against trading, marketing and usage of virtual currency as it was contrary to existing foreign exchange regulations. BoT’s position underscores its commitment to the Tanzanian Shilling and its regulatory authority, reinforced by the National Payments System Act No. 4 of 2015, which prohibits unlicensed digital payments. Despite these restrictions, Tanzanian interest in cryptocurrencies has persisted. In June 2021, our Hon. President Samia Suluhu Hassan acknowledged the growing influence of digital currencies and urged the BoT to prepare for potential crypto adoption. This acknowledgment was a significant step, aligning Tanzania with global trends. BoT is also currently exploring digital currencies to develop a regulatory approach.
Globally, the treatment of cryptocurrencies varies. For instance, in South Africa, while cryptocurrencies are not considered legal tender, they are regarded by South African Revenue Service (SARS) as having an intangible nature. Taxation in South Africa depends on whether transactions contribute to gross income or capital gains, with VAT considerations for transaction fees. Nigeria presents another dynamic case. Cryptocurrencies are not legal tender but are not illegal either. The Central Bank of Nigeria (CBN) initially banned crypto transactions by commercial banks in 2021, but crypto trading continued on exchanges. In 2022, the Securities and Exchange Commission introduced regulations for crypto exchanges, requiring compliance with Know Your Client (KYC) and Anti Money Laundering measures. The CBN lifted its ban in 2023, recognising the importance of cryptocurrencies. Taxation in Nigeria involves a 10% Capital Gains Tax on the profit made from the transaction.
In Tanzania, the Finance Act 2024 ( “the Act”) which was effective since 1 July 2024 introduced a 3% withholding tax on payments by an owner of a digital asset exchange platform made to a resident person (who is the owner of the digital asset) for the exchange or transfer of the asset; a similar provision was introduced in Kenya a year ago. The Act defines digital assets broadly, enclosing cryptocurrencies, tokens, and Non fungible tokens (NFTs). This reflects Tanzania’s effort to embrace digital innovations. By introducing a tax framework for digital asset transactions, does this indicate that the BoT would recognise such transactions?
Embracing cryptocurrencies involves balancing innovation with risk management. As a crypto enthusiast may put it, “It is like watching the financial world getting a makeover!”. Policymakers may adapt swiftly to foster an environment that promotes responsible adoption while ensuring financial stability. Furthermore, the digital currency revolution offers opportunities for financial inclusion, enhanced efficiency through blockchain technology, and new investment potentials. However, it also brings challenges such as volatility, regulatory uncertainty, and cybersecurity threats. Tanzania’s future approach to cryptocurrencies will need to address these issues, learning from global experiences to establish a robust regulatory framework, fair taxation policies (a step has been taken), and comprehensive public education.
As we stand on the edge of this technological transformation, our dynamic economy and progressive population are well placed to embrace these innovations, creating a more inclusive and efficient financial system standing ready to leap from the familiarity of shillings to the innovative world of Satoshi. The future of cryptocurrency remains uncertain, but the dialogue, debate, and journey forward promise to be engaging. Whether as early adopters or latecomers, our trajectory matters. The journey will have its turbulence, with shifting regulatory winds and fluctuating market tides. Yet, with optimism and excitement, we look forward to exploring this new frontier, rallying with the cry: “To the moon and beyond!”
