Regulatory Update Triggers Taxation

Signs of an immediate regulatory shift for cryptocurrency in Nigeria emerged on Wednesday. Crypto exchange KuCoin announced it would begin charging a value-added tax on transactions starting July 8. The exchange cited a "regulatory update" in its email to customers.

"Starting from July 8, 2024, we will begin collecting a Value-Added Tax ("VAT") at a rate of 7.5% on transaction fees in each trade for users whose KYC information is registered in Nigeria," KuCoin said in an email sent to its Nigerian users.

Social Media Confirmation

KuCoin's Africa account on Twitter shared the same information. The tax applies to "all transaction types on the KuCoin platform," the exchange told Decrypt. This is not Nigeria's first attempt to levy a tax on cryptocurrency transactions.

Historical Context

The 2023 Finance Act, which former Nigerian president Muhammadu Buhari signed into law, brought sweeping changes to the nation's fiscal system. From May 1, 2023, the financial authorities introduced a 10% capital gains tax on profits made from the disposal of digital assets.

The country's Security and Exchange Commission (SEC) clarified that "digital assets" include cryptocurrencies, security tokens, and non-security tokens.

Experts told Decrypt last year that a lack of clarity over cryptocurrency's status in Nigeria could make collecting the capital gains tax challenging.

The new VAT fee at KuCoin has been met with similar sentiments. "Taxing crypto transactions may be an early official recognition of the crypto sector in Africa's most populous country," said SEC boss Emomotimi Agama.

Broader Implications

Nigeria's introduction of VAT on crypto transactions raises questions about how this measure affects the country's burgeoning crypto industry.

Last week, the SEC estimated that the industry is valued at $400 million. As one of Africa's largest markets for digital currencies, Nigeria's regulatory decisions will likely impact investor confidence and market dynamics.

Regulatory Compliance

Last month, the country's Security and Exchange Commission asked crypto exchanges and digital asset traders to reregister their businesses within 30 days or risk facing enforcement actions. The SEC said the move was part of its plan to regulate digital asset trading.