Nigeria: Africa’s biggest crypto market risks shrinking under new tax rules

What the guidelines require

On 31 July, the NRS, formerly the Federal Inland Revenue Service, issued what PwC described as the country’s first comprehensive administrative framework for taxing cryptocurrencies, stablecoins, investment and utility tokens, and non-fungible tokens.

The framework introduces a 1% withholding tax on gross disposal proceeds for cryptocurrencies, security tokens and non-fungible tokens.

Passive income from staking, mining, airdrops and DeFi yields will be subject to a 10% withholding tax, while professional fees will be subject to rates of 5% or 10%, depending on the circumstances.

A 7.5% value-added tax will apply to services related to virtual-asset transactions, including exchange fees, brokerage commissions, custody charges and advisory services. 

The guidelines also impose a 1.5% stamp duty on qualifying fiat-to-token and token-to-fiat transfers, payable by the recipient. 

Virtual-asset service providers (VASPs) are required to withhold tax on specified transactions, collect stamp duty in tokens, enforce tax-identification requirements, retain transaction records and submit extensive returns.

Given the perceived prevalence of informal P2P trading in Nigeria, this represents a clear enforcement gap that the NRS will need to address

“Virtual assets should be taxed. It is an economic activity, and once you engage in it and make a profit, you should pay tax,” Iwuno says. “However, the taxation should align with the tax framework that already exists in the country.”

He says the 1.5% stamp duty poses the greatest threat to the sector because it applies to the movement of funds rather than to profits.

He argues that the rules could result in a combined charge of 3% when duty is collected on both sides of a transaction.

“If you are using a naira-backed stablecoin, because it exists as a virtual asset, you have to pay 1.5% on it. But if you transfer or transact the same amount using naira, you pay the normal stamp duty. So why is a virtual asset treated differently?” he says.

Under the tax law, a flat N50 ($0.037) stamp duty applies to electronic transfers and receipts of N10,000 or more.

PwC raises concerns 

PwC Nigeria said in a tax alert on Thursday that the framework provided a “workable baseline for compliance” that brings much-needed clarity.

But the professional services firm also raised concerns about over-taxation, enforcement gaps, and whether the NRS has the legal authority to introduce some of the obligations via administrative guidance.

It questioned whether the revenue agency could impose withholding taxes outside the Withholding Tax Regulations 2024. It also noted that comparable collection obligations are not imposed on bureaux de change or stock exchanges.

Applying withholding tax to gross disposal proceeds while separately assessing income tax on net gains could lead to over-taxation unless the two are carefully reconciled in taxpayers’ annual returns, the firm warned.

The guidelines also lack an effective date, despite introducing obligations that PwC says are not contained in either the Nigeria Tax Act or the Nigeria Tax Administration Act. 

The firm noted that while VASP-operated peer-to-peer (P2P) marketplaces bear full collection obligations, enforcement could be more difficult for informal, off-platform P2P transactions, including wallet-to-wallet transfers, messaging-app trades, and in-person arrangements, which rely entirely on the taxpayer’s annual self-assessment.

“Given the perceived prevalence of informal P2P trading in Nigeria, this represents a clear enforcement gap that the NRS will need to address,” PwC says. 

After the Central Bank of Nigeria barred banks from servicing cryptocurrency exchanges in February 2021, activity shifted towards P2P platforms and other less-regulated channels.