Market News

By Justice Okamgba

Cryptocurrency firms operating in the country have started to implement a 7.5 per 7.5-cent Value Added Tax on all transactions carried out on their platforms.

The development came a few months after the Federal Government charged Binance for reportedly failing to pay taxes.

 KuCoin, a cryptocurrency exchange operating in Nigeria, announced on Wednesday that starting July 8, 2024, it would begin charging users a 7.5 per cent Value-Added Tax on transaction fees.

KuCoin disclosed this update in a statement posted on its official X account. The new policy specifies that the 7.5 per cent VAT will be applied to the transaction fee, not the total transaction amount.

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For instance, if a user buys $1,000 worth of Bitcoin (BTC) with a 0.1 per cent fee rate, the transaction fee would be $1. The VAT would be 7.5 per cent of the fee, which is $0.075, resulting in a net transaction amount of $998.925.

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

KuCoin clarified that the VAT will be applied to all transaction types on its platform and is a regulatory requirement for users in Nigeria.

At the time of this report, the Federal Inland Revenue Service (FIRS) had yet to release an official statement on the development.

The Founder and Coordinator, of Blockchain Nigeria User Group, Chimezie Chuta, confirmed the development with The PUNCH.

He said the implementation of VAT on crypto transactions by KuCoin signifies the Nigerian government’s recognition of crypto as an asset class.

“I honestly see this as an acknowledgement of crypto as an asset class in Nigeria by the government,” Chuta enthused.

However, Chuta emphasised the need for the FIRS to provide clear guidelines on the VAT applicability of digital assets.

“What I think is needed is for FIRS to provide clarity on digital assets being VATable in Nigeria. FIRS should also issue clear guidelines on the matter,” he said.

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Chuta pointed out that it is not ideal for operators to rely solely on KuCoin’s VAT release to determine their tax obligations.

“There is a need for standardization and clarity,” he added, underscoring the importance of official regulatory frameworks for the burgeoning digital asset sector in Nigeria.

The Federal Inland Revenue Services said the crypto firms were only complying with the Federal Government regulations on VAT.

Reacting to an enquiry, Dare Adekanmbi, Special Adviser on Media to the FIRS chairman, said, “By the decision to inform its clients that VAT will henceforth be charged on transactions on its platform, KuCoin has demonstrated readiness to comply with the extant tax laws in Nigeria and this should be commended.  We at FIRS are glad that corporate organisations are showing readiness to comply with the laws of the country as far as revenue collection is concerned. This is what a responsible corporate body should do without being prompted or press-ganged.

According to the agency, the mantra of the FIRS Chairman,  Zacch Adedeji, is that companies should ensure voluntary compliance with our tax laws.

“FIRS the chairman would always say that the agency is not a law enforcement body that should be running after companies with horsewhip before they pay their taxes. Don’t also forget that the Nigerian market is so huge and these crypto coys are interested in business in the most populous Black nation. 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,” he added.

The Federal Government initially signaled its intention to tax cryptocurrency transactions in 2022 when the Finance Act was revised to include a 10 per cent tax on profits from digital assets, encompassing cryptocurrencies.

Kucoin, which operates globally, suspended all peer-to-peer (P2P) trading and fast-buy services via naira on May 15, 2024.

This decision came after the Securities and Exchange Commission stopped P2P transactions across all cryptocurrency platforms.

In recent months, cryptocurrency platforms have been subjected to intense scrutiny following the exit of Binance, which was accused by the Nigerian government of manipulating the naira-to-dollar exchange rate.

Binance was charged with four counts of tax evasion, including failing to pay company income tax and value-added tax, alongside its executives, Tigran Gambaryan and Nadeem Anjarwalla. However, the FIRS later dropped the charges against the executives and named only Binance as the defendant.

The exchange was accused of failing to register for tax purposes with Nigerian authorities and facilitating tax evasion for its users.

The tax issues were part of a broader investigation by Nigerian authorities into Binance’s alleged attempts to manipulate the country’s currency.