Nigeria slams 7.5% VAT on $57bn crypto market proceeds – Business Day

By

Nigeria is set to tap into its cryptocurrency market, which is valued at $56.7 billion, by implementing a 7.5 percent value-added tax (VAT) on crypto transactions.

Starting on July 8, 2024, KuCoin, a crypto platform, will begin charging the 7.5 percent VAT on transaction fees. This is aimed to align with the Federal Inland Revenue Service (FIRS)’s requirement and avoid any potential conflict with the tax agency, with Binance’s case still fresh in the minds of many players.

Nigeria has one of the largest peer-to-peer (P2P) crypto markets globally. According to Chainalysis, a global blockchain platform, crypto 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 highlighted that a significant portion of the population is involved in cryptocurrency trading and transactions.

He said, “Reports indicate that Nigeria’s crypto transaction volume reached $56.7 billion between July 2022 and June 2023, representing a nine percent year-over-year growth.”

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

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

Nigeria initially planned to tax crypto through the Finance Act of 2022, which imposed a 10 percent tax on profits from digital assets, including cryptocurrencies.

“Subject to any exceptions provided by this Act, all forms of property shall be assets for this Act, whether situated in Nigeria or not, including options, debts, digital assets, and incorporeal property generally.”

However, this part of the Act was never enforced.

Experts suggest KuCoin’s move could be part of efforts to obtain licensing in Nigeria. “What KuCoin is doing is probably part of the licensing conditions. They cannot collect tax from an unlicensed entity. Every other exchange will see this and need to follow suit,” said Chimezie Chuta, founder and coordinator of Blockchain Nigeria User Group.

“KuCoin was doing P2P before, but they had to stop. Now that they have given this requirement, it means they have spoken with the government, and this is part of their compliance requirement.”

Earlier in 2024, Nigeria clamped down on crypto transactions despite a December 2023 Central Bank of Nigeria (CBN) guideline meant to govern the digital asset space. Using Binance as a scapegoat, the country’s crackdown included asking telecommunication firms to restrict access to platforms and asking operators to delist naira transactions from their platforms. The country blamed these platforms for encouraging the manipulation of the naira to dollar rates and aiding illicit flows.

In February, Olayemi Cardoso, governor of the CBN, revealed that $26 billion flowed through Binance Nigeria in one year from unidentified sources and users.

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

This eventually led to the arrest of Tigran Gambaryan, Binance’s head of investigations, and Nadeem Anjarwalla (who later escaped), a British lawyer and Kenya-based manager for the crypto exchange for Africa, the delisting of the naira from all Peer-to-Peer crypto platforms, including KuCoin, and a temporary ban on account opening for some fintech by CBN.

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

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

Dare Adekanmbi, special adviser on media to the FIRS executive chairman, Zacch Adedeji, told BusinessDay that KuCoin’s decision to collect VAT has demonstrated readiness to comply with Nigeria’s extant tax laws and should be commended.

“We at FIRS are glad that corporate organisations are showing readiness to comply with the country’s laws as far as revenue collection is concerned. This is what a responsible corporate body should do without being prompted or press-ganged,” he said.

He highlighted that the Nigerian market is huge and crypto 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 enter the country newly have taken a cue from that action,” Adekanmbi added.

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

When BusinessDay asked Adekanmbi of the FIRS, he commented, “I can’t comment on that. But for companies doing business in Nigeria, tax payment is obligatory.”

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

He also highlighted that the SEC plans to regularise the crypto industry.

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

In another announcement, the Kenya Revenue Authority (KRA) announced plans to deduct three percent from the revenue citizens make from selling crypto assets. While South Africa doesn’t have an explicit rule on crypto taxation, and according to CV VC’s African Blockchain Report 2022, existing rules cover the taxation of digital assets.

A Lagos-based player in the crypto space, Joel Chibueze, said an imposition of VAT on crypto transactions is a way of regulating the industry, noting that it will have a negative effect on the industry.

“I believe it is part of the regulations to check fraud and underground 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 allow them to carry on with their lives, and not stifle it.”