Highlights:
- KuCoin will implement a 7.5% VAT on transaction fees for Nigerian users starting July 8, 2024.
- The VAT applies to transaction fees, not transaction amounts, affecting users with Nigerian KYC information.
- This move follows Nigerian government’s increased scrutiny of the crypto industry, including charges against Binance.
KuCoin, a leading cryptocurrency exchange, has announced the implementation of a 7.5% Value-Added Tax (VAT) on transaction fees for Nigerian users starting from July 8, 2024. This new policy affects users whose Know Your Customer (KYC) information is registered in Nigeria, raising concerns amidst ongoing government scrutiny of the crypto industry.
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New VAT Policy Amidst Regulatory Challenges
KuCoin clarified that the 7.5% VAT will be applied to the transaction fees, not the transaction amount. For example, a 1,000 Tether (USDT) transaction will incur a 1 USDT fee, with an additional 0.075 USDT as VAT. Thus, the net amount for the transaction would be 998.925 USDT.
✅KuCoin introduces 7.5% VAT on trading fees for Nigeria Users
We are writing to inform you of an important regulatory update that impacts our users from Nigeria.
Starting from July 8th, 2024, we will begin collecting a Value-Added Tax (“VAT”) at a rate of 7.5% on… pic.twitter.com/Y6elL3RjFi
— KuCoin Africa (@KuCoinAfrica) July 3, 2024
This announcement occurred four months after the Nigerian government filed tax evasion charges against Binance, the world’s largest crypto exchange. The Federal Inland Revenue Service (FIRS) of Nigeria accused Binance of failing to deduct VATs from Nigerian crypto traders, neglecting to register and pay taxes, aiding users in tax evasion, and not issuing VAT invoices.
Stakeholder Reactions and Future Implications
Local industry stakeholders have expressed concerns about the timing and regulatory implications of KuCoin’s new VAT policy. Lucky Uwakwe, President of the Blockchain Industry Coordinating Committee of Nigeria (BICCoN), highlighted potential challenges in enforcing the new tax, such as verifying user counts, ensuring accurate trade reporting, and managing the remittance of collected taxes.
The Central Bank of Nigeria’s (CBN) constraints on converting cryptocurrencies to fiat currencies add another layer of complexity. How KuCoin intends to remit the VAT collected under these financial restrictions remains uncertain. Given the current policies, this scenario raises questions about whether banks will handle crypto-related transactions.
Potential for Regulatory Shifts
KuCoin’s introduction of VAT on crypto transactions might indicate a shift in governmental attitudes toward recognizing digital assets. Rume Ophi, a local crypto analyst, views the VAT levy as a positive step that could lead to the formal acceptance of cryptocurrencies as legitimate financial instruments in Nigeria. He suggests that this move might pave the way for future regulations and licensing within the crypto industry.
However, the continued prohibition by the CBN, initiated in 2021, remains a significant barrier. This restriction has discouraged local crypto exchange development, pushing industry players to seek more favorable conditions abroad. Ophi lamented the missed opportunities due to stringent government actions, which have stifled the growth of the nascent crypto industry in Nigeria.
Speculation abounds that this tax could be a precursor to more comprehensive crypto regulations, allowing banks to facilitate crypto trades beyond peer-to-peer transactions. However, clarity on this matter has yet to be provided, leaving room for speculation among users and stakeholders.
KuCoin’s Move Amidst a Tough Year for Crypto Companies
This year has been particularly challenging for crypto companies in Nigeria. Clampdowns have led to platforms like Binance and KuCoin halting peer-to-peer (P2P) trade involving the Nigerian naira (NGN). Binance, facing significant legal challenges, has detained an employee on money laundering charges.
KuCoin’s latest VAT policy reflects an effort to align with regulatory changes despite the ongoing challenges. The Nigerian government has shown an interest in taxing the crypto industry, as evidenced by the Finance Act of 2022, which includes a 10% tax on profits from digital assets. However, this part of the Act has yet to be enforced.
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