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Nigeria's 7.5% crypto VAT impacts smaller traders and may push them to unregulated platforms, reshaping Africa's digital economy.
Recently, Nigeria's Federal Inland Revenue Service (FIRS) made waves by announcing a new tax regime on crypto transactions. Expected to roll out by September 2024, it aims to modernize the nation’s tax system and address the booming cryptocurrency market. This is a big deal, considering Nigeria's place as one of the largest crypto markets globally. With this new tax, I wonder if it will boost growth or stifle innovation?
The main feature of this new law is a flat 7.5% VAT on all crypto transactions. But here's the catch: this tax is only on the service fees, not on the total amount of the cryptocurrency being transferred. So, if you’re transferring Bitcoin and pay a small fee, just that fee gets taxed.
Moreover, the bill targets service fees, operational costs, and anything else related to the transactions. However, the full details are still under wraps.
This tax could hit smaller traders hard. They operate on thin margins. A 7.5% VAT on service fees could eat into the profits of smaller transactions, making it harder for them to stay afloat. Chuta Chimezie from the Blockchain Nigeria User Group pointed out that the lack of clarity in the regulations could complicate things even further.
This could be particularly devastating for traders who engage in low-margin microtransactions. A 7.5% tax may not seem like a lot for big trades, but for small, frequent trades, it adds up quickly. The increased costs could deter people from trading in the first place.
The new law might incentivize traders to go off the grid, opting for unregulated platforms. As we've seen with the recent withdrawal of global platforms like OKX from Nigeria, users could seek out unregulated or offshore platforms to avoid the new costs.
With the current challenges crypto firms face, this could push more people out of the regulated space.
If Nigeria’s tax regime takes a page from South Africa's book, it'll need effective enforcement measures, clear classifications and rates, and technological resources for monitoring crypto transactions.
If it does work, it could provide a more consistent regulatory framework, enabling cross-border crypto businesses to thrive. If it’s too restrictive, it could have the opposite effect, not just in Nigeria but across Africa.
In conclusion, Nigeria’s new crypto tax law aims to modernize the financial and crypto landscape while generating additional revenue. The key question remains: will it boost revenue, or will it slow the growth of the crypto sector?
