Nigeria is poised to harness its burgeoning cryptocurrency market, valued at $56.7 billion, by implementing a 7.5% value-added tax (VAT) on crypto transactions. This new tax will be enforced starting July 8, 2024, marking a significant shift in the regulatory landscape for digital assets in the country.
Kucoin, a major cryptocurrency platform, announced it would start charging the 7.5% VAT on transaction fees to comply with the Federal Inland Revenue Service (FIRS) regulations. This move comes in the wake of regulatory scrutiny, notably the ongoing legal challenges faced by Binance in Nigeria.
Nigeria is home to one of the largest peer-to-peer (P2P) crypto markets globally. According to Chainalysis, a global blockchain analytics firm, the country saw crypto transactions totaling $56.7 billion between July 2022 and June 2023. Emomotimi Agama, director-general of the Securities and Exchange Commission (SEC), emphasized the significant involvement of the Nigerian population in cryptocurrency trading, noting a 9% year-over-year growth in transaction volume.
In a communication to its users, Kucoin outlined the details of the VAT implementation: “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 clarified that the VAT would apply to transaction fees, not the transaction amount, affecting all transaction types on Kucoin.
Nigeria’s initial attempt to tax crypto through the Finance Act of 2022, which proposed a 10% tax on profits from digital assets, was not enforced. Experts suggest Kucoin’s current move might be part of efforts to secure 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,” commented Chimezie Chuta, founder and coordinator of the Blockchain Nigeria User Group.
Earlier this year, Nigeria intensified its crackdown on crypto transactions despite a December 2023 Central Bank of Nigeria (CBN) guideline aimed at regulating the digital asset space. The crackdown included restrictions on telecom firms to block access to platforms and a directive to delist naira transactions. This action was partly in response to concerns about the manipulation of naira to dollar exchange rates and illicit financial flows.
In February, CBN Governor Olayemi Cardoso revealed that $26 billion had flowed through Binance Nigeria in one year from unidentified sources. “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 led to the arrest of Tigran Gambaryan, Binance’s head of investigations, and Nadeem Anjarwalla, a British lawyer and Kenya-based manager for the crypto exchange in Africa. The CBN also delisted the naira from all P2P crypto platforms, including Kucoin, and temporarily banned account openings for some fintech companies.
In an interactive session with the Nigerian Blockchain Industry, Agama reiterated the rationale behind delisting the naira from P2P platforms: “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 it of failing to register for and pay taxes in Nigeria.
Dare Adekanmbi, special adviser on media to the FIRS executive chairman Zacch Adedeji, commended Kucoin’s decision to collect VAT, highlighting its commitment to compliance. “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.
While some, like Lagos-based crypto enthusiast Joel Chibueze, view the VAT imposition as a regulatory measure to check fraud and underground transactions, there are concerns it could 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,” Chibueze remarked.
As Nigeria joins other African nations in taxing crypto, the legal and regulatory frameworks will continue to evolve, aiming for a balance between regulation and fostering innovation in the burgeoning crypto market.
