New Tax Rules for Virtual Assets in Nigeria: A Mixed Outlook
PricewaterhouseCoopers (PwC) has highlighted potential challenges in implementing Nigeria’s new tax rules for virtual assets, despite the introduction of a more structured framework for taxing the rapidly expanding digital asset sector. The firm emphasized that while the guidelines offer clarity, several practical and legal issues remain unresolved.
In a recent tax alert, PwC noted that the Nigeria Revenue Service (NRS) released “Guidelines on the Taxation of Virtual Assets,” marking the first comprehensive administrative framework for taxing virtual assets in the country. However, the guidelines did not specify an effective date, even though they introduced obligations not clearly outlined in the Nigeria Tax Act or the Nigeria Tax Administration Act (NTAA).
Key Compliance Requirements
Taxpayers involved in virtual asset (VA) activities are urged to register for tax and obtain a Tax ID immediately, as Nigerian Virtual Asset Service Providers (VASPs) may cease processing transactions for non-compliant users. The lack of an effective date means VASPs could implement the rules abruptly, creating uncertainty.
VASPs must review their systems to ensure they can withhold, compute, and remit taxes in token units. They should also consider whether to challenge the NRS’s position, which may be inconsistent with the Withholding Tax (WHT) Regulations. However, this could be complicated by the NRS’s ability to appoint agents or use its powers of substitution. The NTAA allows the NRS to delegate tax collection rights to other authorities, including states, which could lead to conflicts.
All taxpayers are required to adopt either the First-In, First-Out (FIFO) or Weighted Average Cost method for cost base calculations from the start, as switching methods retrospectively is not permitted. Record-keeping for at least six years is mandatory.
Classification of Virtual Assets
The guidelines classify virtual assets into six categories. Cryptocurrencies and exchange tokens such as Bitcoin and Ether are considered taxable assets, while sovereign digital currencies like the eNaira are excluded and treated like fiat currency.
A single virtual asset transaction can trigger multiple taxes, including income tax, withholding tax, value added tax (VAT), and stamp duty. The guidelines introduce a 1% WHT on gross disposal proceeds for certain asset categories, a 7.5% VAT on related service charges, and a 1.5% stamp duty on token-to-fiat and fiat-to-token transfers.
Industry Reactions and Concerns
Proshare’s Chief Economist and Managing Editor, Teslim Shitta-Bey, observed that regulatory bodies such as the Central Bank of Nigeria (CBN), tax authorities, and the Securities and Exchange Commission (SEC) are still treating digital assets within an observational sandbox. He noted that managing and setting regulatory guardrails remains experimental until all oversight authorities fully understand the implications of digital asset trading.
Kayode Adeboye, Chairman of the Institute of Chartered Accountants of Nigeria, Sokoto State Branch, praised the guidelines for providing a framework for determining how different virtual asset categories are treated. He highlighted the 1% WHT on gross disposal proceeds, which differs from taxing actual economic gains. However, he emphasized that the lack of an effective date is a significant legal and administrative weakness.
Calculating Taxable Gains
One notable provision in the guidelines is the use of a dollar-referenced method for calculating taxable gains. Under this approach, gains are calculated based on the U.S. dollar value of an asset at acquisition and disposal, then converted to naira using the Central Bank of Nigeria’s official rate on the disposal date. This helps prevent taxation on gains caused solely by naira depreciation.
Losses from virtual asset disposals can only be offset against future virtual asset gains and cannot reduce non-virtual asset income.
Role of Virtual Asset Service Providers
PwC stated that the guidelines place VASPs at the center of tax collection, requiring them to withhold taxes, deduct stamp duty in token units, enforce Tax ID requirements, and file returns. The penalty regime is severe, with non-compliance by a VASP or peer-to-peer marketplace attracting a fine of N10 million for the first month and N1 million for each subsequent month of default.
The firm also raised concerns about a potential conflict over whether the NRS can impose withholding tax outside the existing WHT regulations. It noted that enforcement may be easier on VASP-run platforms than on informal peer-to-peer transactions conducted outside regulated platforms.
Enforcement Challenges
“True off-platform bilateral transactions” such as wallet-to-wallet transfers and messaging app trades depend largely on annual self-assessment, leaving a clear enforcement gap. PwC urged taxpayers engaged in virtual asset activities to register for tax and obtain a Tax ID, warning that Nigerian VASPs may stop processing transactions if users fail to comply.
The guidelines appoint VASPs as the primary collectors in the ecosystem. VASPs must withhold WHT on disposals, deduct stamp duty in token units, enforce Tax ID requirements as a precondition for account activation, and file comprehensive returns. The penalties leave little margin for error.
However, two questions remain: First, whether the guidelines are fair, considering the same obligations are not imposed on bureaux de change and stock exchanges; and secondly, whether the NRS can impose WHT outside the WHT Regulations 2024.
