KuCoin, a leading cryptocurrency exchange in Nigeria, announced it would resume a 7.5% Value Added Tax (VAT) on all crypto transactions starting July 8, 2024.
The decision, communicated to registered users via email, has sparked significant backlash within the Nigerian crypto community.
The reintroduction of the VAT is seen as a move by Nigeria’s Federal Inland Revenue Service (FIRS) to intensify its oversight and regulation of the country’s burgeoning crypto industry.
This has raised concerns among crypto enthusiasts who question the rationale behind taxing an industry that has previously been subject to stringent government policies.
Historical Context and Current Policies
Nigeria has not banned cryptocurrency outright, but regulatory bodies like the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC) have imposed tough measures on the sector.
Recently, major exchanges were forced to delist peer-to-peer crypto trading due to allegations of currency manipulation affecting the naira.
These actions have created an unofficial anti-crypto stance, making the new call for a 7.5% tax on all crypto transactions confusing.
Industry Reaction and Analysis
To provide a comprehensive view of this development, Nairametrics interviewed three analysts and crypto experts.
Olayimika Oyebanji, a Web3 policy expert and award-winning crypto journalist, expressed mixed feelings about the new tax policy. He described it as a “welcome development” but also “ill-advised.”
“While it is compelling to describe the 7.5% VAT on crypto transactions as a welcome development, I am strongly of the opinion that it’s ill-advised and inopportune. It highlights the disconnect between the FIRS, the CBN, and the SEC. We can’t continue to have a situation where the country’s regulatory agencies make contradictory policies for an industry that’s still in its infancy,” Oyebanji said.
He emphasized the need for a cohesive regulatory framework for cryptocurrencies in Nigeria, comparing the situation to the United States, where different agencies have distinct classifications and regulations for crypto assets.
“Taxing crypto-related activities is a regulatory approach that must be undertaken with caution. When you study the extant American crypto taxation system, you will discover the different regulatory classifications that apply to cryptocurrency,” Oyebanji added.
Market Impact and Concerns
Rume Ophi, a crypto market analyst and leading voice in Africa’s crypto community, argued that while the VAT indicates the government’s move towards formalizing the crypto sector, the high tax rate could drive users away from regulated exchanges.
“The 7.5% tax will most likely create a mindset of using offshore platforms without KYC. These smart champs know how to get around it. Transactions from cold storage cannot be taxed, and the government will miss out,” Ophi noted.
Ophi also highlighted the failure of Nigerian authorities to nurture the crypto sector, pointing out that past policies have driven away global blockchain and crypto businesses. He criticized the criteria for the VAT, suggesting a threshold should be set for large transactions rather than imposing the tax on all amounts.
“Getting the news of the VAT, what came to mind was the licensing process is here, but it looks like we are going to waste even more time. My challenge is the criteria for charging 7.5%. I would have suggested some amount like a threshold should be reached to be charged. Let’s say if someone is moving $20,000 and above on a daily basis, that could apply to it. Not just every amount,” Ophi stated.
A Balanced Perspective
Obinna Uzojie, a data analyst at Africa Policy, provided a balanced perspective, acknowledging both the positive and negative implications of the VAT. He praised the move as recognition of the importance of cryptocurrencies but stressed the need for clear regulations.
“The absence of clear regulations creates uncertainty for investors, making it challenging for the industry to thrive. Nigeria should study the UAE’s approach and establish clear regulations that guide the use of crypto. This would provide much-needed clarity for investors and create a supportive environment for the industry to grow,” Uzojie suggested.
Uzojie also compared Nigeria’s approach to the United Arab Emirates (UAE), which has established a clear framework that balances taxation with regulatory oversight. The UAE does not levy capital gains tax or personal income tax on crypto holdings for individual investors, creating a favorable environment for crypto adoption.
Looking Ahead
The imposition of the 7.5% VAT on crypto transactions starting July 8, 2024, represents a significant shift for Nigeria’s crypto industry. Analysts agree that a more robust regulatory framework is crucial for the growth and stability of the sector, imposition of a tax could affect growth in the burgeoning sector.
While the 7.5% VAT on crypto transactions presents an opportunity for revenue generation, it also highlights the urgent need for comprehensive regulations that promote clarity, innovation, and growth in Nigeria’s crypto industry.
As Nigeria navigates this new era, the government’s approach to balancing taxation with supportive regulations will be pivotal in determining the future of cryptocurrency in the country.