Introduction

The Organisation for Economic Co-operation and Development (OECD) is an international organisation that promotes policies to improve the economic and social well-being of people around the world. One of its recent initiatives is the Crypto-Asset Reporting Framework (CARF), which provides for the reporting of tax information on transactions in crypto-assets in a standardised manner, with a view to automatically exchanging such information with the jurisdictions of residence of taxpayers on an annual basis.

The CARF, which was approved by the OECD in August 2022, aims to address the challenges posed by the rapid development and growth of the crypto-asset market, which may have implications for tax transparency, compliance and enforcement. The CARF defines the relevant crypto-assets in scope and the intermediaries and other service providers that will be subject to reporting. It also specifies the due diligence procedures to identify crypto-asset users and their controlling persons, and the information to be reported on an aggregate basis, divided by type of crypto-asset and type of transaction.

The CARF is aligned with the global anti-money laundering standards of the Financial Action Task Force (FATF), which require countries to regulate and supervise virtual asset service providers and to implement the so-called "travel rule", which obliges them to obtain and transmit information on the originators and beneficiaries of virtual asset transfers. The CARF also incorporates amendments to the Common Reporting Standard (CRS), which is the global standard for the automatic exchange of financial account information, to bring certain electronic money products and Central Bank Digital Currencies in scope, and to ensure that indirect investments in crypto-assets through derivatives and investment vehicles are covered.

Why some African countries are interested in the CARF

According to a 2020 online survey by data platform Statista, 32% of Nigerians who participated used cryptocurrencies - the highest proportion of any country in the world. Other African countries, such as Kenya, South Africa and Ghana, also have significant numbers of crypto users and traders. Estimates show that of the top 10 countries for trading volumes, Nigeria ranked third place after the US and Russia in 2020, generating more than $400 million worth of transactions.

The adoption of crypto-assets in Africa is driven by various factors, such as the lack of access to formal financial services, the high cost and inefficiency of cross-border payments and remittances, the volatility and devaluation of local currencies, the inflation and instability of some economies, and the desire to diversify income sources and investment opportunities. Crypto-assets offer a potential alternative to traditional financial systems and intermediaries, enabling peer-to-peer transactions, lower fees, faster settlement, greater transparency and financial inclusion.

However, the use of crypto-assets also poses some risks and challenges, such as the lack of consumer protection and investor education, the vulnerability to cyberattacks and fraud, the potential for tax evasion and money laundering, and the uncertainty and inconsistency of the regulatory environment. Some African countries, such as Cameroon, Ethiopia, Lesotho, Sierra Leone, Tanzania and the Republic of Congo, have banned or restricted the use of crypto-assets, citing these concerns. Others, such as Namibia and Burundi, have prohibited trading, while others, such as Zimbabwe and Liberia, have ordered banks and other service providers to stop facilitating crypto transactions. Only one-quarter of countries in sub-Saharan Africa formally regulate crypto-assets, according to the International Monetary Fund (IMF).

This is where the CARF could play a role in providing a common framework and guidance for African countries that are interested in adopting and regulating crypto-assets, while ensuring tax transparency and compliance. In fact, some African countries have already expressed their support and commitment to implement the CARF by 2027, along with 47 other jurisdictions that have pledged to do so at the G20 meeting in October 2022. These countries include Botswana, Burkina Faso, Cabo Verde, Côte d'Ivoire, Egypt, Eswatini, Gabon, Kenya, Mauritius, Morocco, Nigeria, Senegal, Seychelles, South Africa and Uganda.

What are the main implications and benefits of the CARF for Africa?

The implementation of the CARF by African countries could have several implications and benefits, both for the governments and the crypto-asset users and providers. Some of these are:

• Enhanced tax transparency and compliance: The CARF would enable African tax authorities to obtain and exchange information on crypto-asset transactions involving their residents, which could help them to assess and collect the appropriate taxes, such as income tax, capital gains tax, value-added tax or withholding tax, depending on the nature and source of the income or gains derived from crypto-assets. This could also help them to prevent and detect tax evasion and avoidance, and to cooperate and coordinate with other jurisdictions in case of cross-border disputes or investigations.

• Improved regulatory clarity and consistency: The CARF would provide a common set of rules and definitions for crypto-assets and their service providers, which could help to harmonise and streamline the regulatory landscape in Africa, and to reduce the uncertainty and inconsistency that currently exist among different countries and regions. This could also facilitate the compliance and reporting obligations of crypto-asset users and providers, and reduce the administrative and operational costs and burdens associated with them.

• Increased innovation and inclusion: The CARF would recognise and support the development and growth of the crypto-asset market in Africa, which could foster innovation and inclusion in the financial sector, and create new opportunities for entrepreneurs, investors and consumers. By providing a clear and conducive regulatory framework, the CARF could also attract more reputable and legitimate crypto-asset service providers to operate in Africa, and enhance the trust and confidence of the public in the use of crypto-assets.

Conclusion

The CARF is a groundbreaking and ambitious initiative that aims to provide a global standard and framework for the reporting and exchange of tax information on crypto-asset transactions. The CARF has gained the support and commitment of several African countries, which recognise the potential and importance of crypto-assets for their economic and social development. The CARF could have significant implications and benefits for Africa, such as enhancing tax transparency and compliance, improving regulatory clarity and consistency, and increasing innovation and inclusion. However, the CARF also poses some challenges and trade-offs, such as balancing the need for regulation and supervision with the need for innovation and freedom, and ensuring the respect and support for the sovereignty and autonomy of the African countries and people. The CARF is expected to be implemented by 2027, and it will be interesting to see how it will shape and transform the crypto-asset landscape in Africa and beyond.