Nigeria criticizes 7.5% VAT on $57 billion in cryptocurrency revenue

Nigeria is poised to capitalize on its $56.7 billion cryptocurrency market by introducing a 7.5 percent value-added tax (VAT) on cryptocurrency transactions.

Starting July 8, 2024, KuCoin, a cryptocurrency platform, will start charging 7.5 percent VAT on transaction fees. This is to align with the requirements of the Federal Inland Revenue Service (FIRS) and avoid any potential conflict with the IRS, with the Binance case still fresh in the minds of many players.

Nigeria has one of the largest peer-to-peer (P2P) cryptocurrency markets in the world. According to Chainalysis, a global blockchain platform, cryptocurrency transactions in the country reached $56.7 billion between July 2022 and June 2023.

Emomotimi Agama, Director General of the Securities and Exchange Commission (SEC), recently pointed out that a significant part of the population is involved in cryptocurrency trading and transactions.

He said: “Reports indicate that the crypto transaction volume in Nigeria reached $56.7 billion between July 2022 and June 2023, a year-on-year growth of nine percent.”

In an email to customers on Wednesday, KuCoin said, “We are writing to inform you of an important regulatory update that impacts our users in the Republic of Nigeria. Effective July 8, 2024, we will begin collecting a Value Added Tax (VAT) at a rate of 7.5 percent on transaction fees for each transaction for users whose KYC information is registered in Nigeria.”

The platform noted that VAT will apply to transaction fees, not transaction amounts, and covers all types of transactions on the KuCoin platform. It explained, “Transaction: Buy 1,000 USDT of BTC. Fee: 1 USDT (0.1 percent fee rate). Tax: 0.075 USDT (7.5 percent fee). Net amount per transaction: 998.925 USDT.”

Nigeria had initially planned to tax cryptocurrencies through the Finance Act of 2022, which would impose a 10% tax on profits from digital assets, including cryptocurrencies.

“Subject to the exceptions provided in this Act, all forms of property shall be deemed to be assets under this Act, whether or not situated in Nigeria, including options, debt, digital assets and intangible property generally.”

However, this part of the law has never been enforced.

Experts suggest that KuCoin’s move could be part of its efforts to get a license in Nigeria. “What KuCoin is doing is probably part of the licensing conditions. They can’t collect fees from an unlicensed entity. Every other exchange will see this and will have to do the same,” said Chimezie Chuta, founder and coordinator of Blockchain Nigeria User Group.

“KuCoin used to do P2P before, but they had to stop. Now that they have made this requirement, it means they have talked to the government, and this is part of their compliance requirement.”

Read also: Representatives probe CBN’s N1.12 trillion loan plan, NIRSAL’s N215 billion loan

In early 2024, Nigeria cracked down on cryptocurrency transactions despite a December 2023 Central Bank of Nigeria (CBN) guideline intended to govern the digital asset space. Using Binance as a scapegoat, the country’s crackdown included calling on telecom companies to restrict access to the platforms and requiring operators to remove naira transactions from their platforms. The country blamed these platforms for encouraging manipulation of naira-dollar exchange rates and facilitating illicit flows.

In February, CBN Governor Olayemi Cardoso revealed that $26 billion from unidentified sources and users had passed through Binance Nigeria in one year.

“Suffice it to say that we are determined to do whatever it takes to ensure that we take charge of our market and do not allow others to manipulate it… We will not accept this and will do everything we can to prevent any infringement,” he said.

This led to the arrest of Binance’s head of investigations Tigran Gambaryan and Nadeem Anjarwalla (who has since fled), a British lawyer and Kenyan head of cryptocurrency exchange Africa, the removal of the naira from all peer-to-peer cryptocurrency platforms, including KuCoin, and a temporary ban on account opening for some fintechs by the CBN.

During an interactive session with the Nigerian Blockchain Industry, Agama, quoted above, said: “The delisting of the naira from P2P platforms is to avoid the level of manipulation that is currently taking place.”

Binance is currently on trial, with the FIRS accusing the company of failing to register and pay taxes in Nigeria.

Dare Adekanmbi, special media advisor to FIRS executive chairman Zacch Adedeji, told BusinessDay that KuCoin’s decision to collect VAT demonstrated its willingness to comply with Nigeria’s existing tax laws and should be commended.

“We at FIRS are happy that corporate bodies are showing readiness to comply with the laws of the country with regard to revenue collection. This is what a responsible corporate body should do without being prompted or coerced,” he said.

He stressed that the Nigerian market is huge and cryptocurrency companies are interested in doing business in the country. “With our recent action against one of them, it is pleasing that others who want to expand their businesses or want to re-enter the country have taken inspiration from that action,” Adekanmbi added.

Read also: Court dismisses FIRS tax case against arrested Binance executives

However, this move has raised questions about the legality of cryptocurrencies in Nigeria. Chuta, quoted earlier, said: “The question that arises is whether the CBN has approved this, whether they are in line with this or whether it is just the FIRS pushing for this. If the CBN is in line with this, we automatically have a regulated cryptocurrency industry because you cannot collect tax from something that is not recognized. They cannot collect tax from an unlicensed entity.”

When BusinessDay asked Adekanmbi about FIRS, he said: “I cannot comment on that. But for companies doing business in Nigeria, paying taxes is mandatory.”

Chuta, for his part, noted that this move will also improve transparency in the ecosystem and “there will be some kind of compliance framework.”

He also stressed that the SEC intends to regulate the cryptocurrency sector.

Nigeria joins other African countries in taxing cryptocurrencies. Kenya announced in 2022 that 20 percent would be deducted from the transaction fee charged by exchanges.

In another announcement, the Kenya Revenue Authority (KRA) announced plans to deduct three percent from the revenue citizens earn from the sale of cryptocurrencies. While South Africa does not have an explicit rule on cryptocurrency taxation, and according to CV VC’s African Blockchain Report 2022, existing rules address the taxation of digital assets.

Joel Chibueze, a Lagos-based cryptocurrency industry player, said that imposing VAT on cryptocurrency transactions is a way to regulate the industry, noting that it will have a negative effect on it.

“I think it is part of the regulations to control fraud and black market transactions in the industry. However, we are also sending signals that we want to stifle the industry.

“My position is: if you can’t give people jobs, at least let them get on with their lives, and don’t stifle them.”

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