Here is Why the Country Needs to Build Its Capacity on Cryptocurrency Faster.
In the new tax proposals for 2024/25, Tanzania has announced a 3 percent tax on digital assets transactions. The Finance Bill which is expected to be adopted by July 1, 2024, defines digital assets as anything of value that is intangible, including cryptocurrencies, token codes, and numbers held in digital form generated through cryptographic or other means.
This definition encompasses anything providing a digital representation of value exchanged with or without consideration that can be transferred, stored, or exchanged electronically.
The Act specifically targets non-resident individuals or entities that own platforms or facilitate the exchange or transfer of digital assets. This means from crypto exchange sites to brokers, the law will require these platform owners to register in Tanzania’s simplified tax system and withhold a tax rate of 3 percent when making payments to a resident as a result of transfer or exchange.
Crypto in Tanzania
While the global market value of cryptocurrency stands at $2.46 trillion (2.2 percent of the global GDP), Tanzania does not have a specific legal framework for digital assets. The country’s approach to digital currency has been cautious, without intrusive measures against individuals engaging in these assets. In 2019, the Bank of Tanzania banned the use or trading of cryptocurrency in the country.
Nevertheless, various reports indicate that a significant number of Tanzanians own cryptocurrencies. A report by Triple A, a Singaporean cryptocurrency research firm, estimates that about 2.3 million Tanzanians own cryptocurrency.
However, the latest financial inclusion report for 2023 by the Bank of Tanzania and the Financial Sector Deepening Tanzania (FSDT) shows that about 1.7 percent of the Tanzanian adult population equivalent to 580,282 adults, have invested in cryptocurrencies.
Additionally, a 2018 report by Baker McKenzie shows that Tanzania has a substantial cryptocurrency mining sector, ranking 120th out of 219 countries. The report suggests that Tanzania’s electricity consumption for cryptocurrency mining could exceed the country’s non-cryptocurrency-related electricity consumption per year.
On June 12, 2021, Tanzania’s President urged the Bank of Tanzania to be prepared for developments in blockchain, cryptocurrency, and other digital currencies gaining global popularity. “We have witnessed the emergence of new currencies that are used digitally, that is blockchain or cryptocurrency,” said President Samia during her address.
She added: “I understand that many countries, including Tanzania, have either not accepted or have not started using those currencies. However, I’d urge the BoT to start working on these developments, by just getting ready and getting prepared.”
The introduction of the tax framework may signal that the country is moving closer to establishing a clear direction for its approach to cryptocurrency.
Why Tanzania Needs to Act Quickly
During the launch of the Financial Inclusion report on July 16, 2023, the Governor of the Bank of Tanzania, Emmanuel Tutuba, cautioned users about the risks involved in investing and trading cryptocurrency, citing the country’s lack of capacity to determine which cryptocurrencies are genuine or fake.
“We are yet to have the capacity to determine which is genuine or fake cryptocurrency, so we continue to caution the public to avoid using those cryptocurrencies,” argued Tutuba.
He added, “At present, we do not have official systems to trace who has issued these cryptocurrencies and whether they are genuine. As the Central Bank, we continue to conduct research and develop systems that will manage this properly. Once these systems are complete, we will inform the public and provide guidelines.”
Despite the country’s commitment to developing guidelines, the uptake on the ground suggests that the Bank needs to act quickly. For instance, over the past year, The Chanzo has been following the country-wide network of affiliates of the Pi Network, a non-listed cryptocurrency that has gathered millions of followers worldwide.
The Pi cryptocurrency currently has no value except for the value placed by its network, making it fictitious until it is open to exchange with other cryptocurrencies and forms of money.
Nevertheless, numerous meetings in Tanzania for crypto enthusiasts, including both young people and older individuals, indicate high enthusiasm. Many affiliates believe that when Pi goes to Open Mainnet, they will have accumulated enough coins to become billionaires.
These groups have evolved into exchanging goods through a barter system or, in many cases, using the Pi coin. The Chanzo has witnessed several transactions involving cosmetics, food, and other daily essentials.
The exchange of goods through Pi coin has been organized in several regions, including Dar es Salaam, Kilimanjaro, Morogoro, Mbeya, Zanzibar, and Arusha. The Chanzo estimates that based on the number of individuals in various WhatsApp groups, Pi coin enthusiasts in Tanzania might number close to 20,000.
Tanzanian Pi coin enthusiasts, like millions of others, cling to the hope that the coin will be listed and shifted to Open Mainnet, leading to super profit. However, critics point out that its referral modality resembles a pyramid scheme and the fact that the company raises money through advertising, has made more people suspicious.
Questions remain about whether trading goods and services at the nascent stage of such platforms is necessary. The reliance on a non-existent economy of promises is taking hold, making it imperative for the Bank to provide clear guidelines.
Source: The Chanzo.
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