Key Points
- PwC has raised legal and enforcement concerns over Nigeria’s new virtual asset tax guidelines.
- The firm questioned the authority to impose some withholding tax obligations through administrative guidelines.
- It warned that peer-to-peer crypto transactions could create enforcement gaps.
- PwC also highlighted compliance requirements covering VAT, stamp duty, Tax IDs and record keeping.
Main Story
PwC Nigeria has raised legal and compliance concerns over the Nigeria Revenue Service’s new guidelines for taxing virtual assets, particularly around withholding tax, enforcement of peer-to-peer transactions, valuation and implementation.
The firm said the guidelines provide a clearer framework for taxing cryptocurrencies, stablecoins, investment and utility tokens, governance tokens and non-fungible tokens (NFTs), but noted that several aspects require further clarification.
One of the major concerns relates to the withholding tax provisions. PwC said virtual asset service providers (VASPs) are required to deduct one per cent withholding tax from gross disposal proceeds involving cryptocurrencies, investment tokens and NFTs.
It said income from activities including staking, mining, airdrops and decentralised finance rewards would attract 10 per cent withholding tax.
PwC, however, questioned whether the Nigeria Revenue Service could impose such obligations through administrative guidelines where the relevant provisions were not expressly contained in the 2024 Withholding Tax Regulations.
The firm said the issue could have implications for VASPs as they configure their systems to automatically deduct taxes from transactions.
PwC also identified difficulties in enforcing the tax regime on peer-to-peer transactions conducted outside regulated platforms.
It said transactions carried out directly between wallets, through messaging applications or in person may not involve an intermediary capable of identifying the parties and collecting the applicable taxes.
Such transactions would largely depend on taxpayers declaring their liabilities through self-assessment, creating a potential enforcement gap given the scale of informal peer-to-peer activity.
Under the new framework, VASPs are also expected to play a central role in tax collection by deducting withholding tax, collecting stamp duty, enforcing Tax Identification Number requirements, filing returns and maintaining transaction records.
They are also required to account for VAT on taxable services and remit taxes within prescribed timelines.
PwC said these obligations could substantially increase the operational and compliance burden on virtual asset platforms.
The firm noted that non-compliance by VASPs and peer-to-peer marketplaces attracts a penalty of ₦10 million for the first month of default and ₦1 million for each subsequent month.
Failure to deduct tax at source attracts a penalty of 40 per cent of the amount that should have been deducted, while failure to remit tax already deducted could attract additional penalties and interest.
PwC also highlighted the treatment of the one per cent withholding tax, noting that it is calculated on gross disposal proceeds rather than only the profit made from a transaction.
It said this would require taxpayers to properly reconcile tax deducted at the transaction stage with their final tax liabilities.
The firm said the guidelines also impose a 7.5 per cent VAT on taxable virtual asset-related services, including exchange fees, brokerage commissions, custody fees and advisory services.
However, transferring ownership of a virtual asset does not by itself constitute a taxable supply for VAT purposes. Where a digital asset is used to pay for goods or services that are otherwise taxable, VAT would still apply to the underlying transaction.
The guidelines also provide for a 1.5 per cent stamp duty on token-to-fiat and fiat-to-token transfers, with VASPs responsible for deducting and remitting the duty.
PwC noted that transactions of ₦10 million or less should not attract the stamp duty.
The firm welcomed the use of US dollar values in calculating gains on virtual assets, saying the approach could prevent taxpayers from being taxed on gains created solely by naira depreciation.
Under the methodology, the dollar value of an asset at acquisition is compared with its dollar value at disposal, after which the resulting gain is converted to naira using the applicable CBN/NAFEM exchange rate on the disposal date.
PwC also noted that simply holding virtual assets would not trigger tax under the guidelines.
Certain transactions that do not involve a change in beneficial ownership, including transfers between wallets owned by the same individual, staking lock-ups, NFT minting and some decentralised finance transactions, are covered by safe-harbour provisions.
The firm, however, pointed out that the wallet-transfer safe harbour applies to individuals but not companies or partnerships, potentially creating uncertainty for businesses managing assets across multiple wallets.
The guidelines also allow losses from virtual asset disposals to be offset against virtual asset gains, while such losses cannot be used to reduce income from unrelated activities.
PwC said capital losses could be carried forward indefinitely for the purpose of offsetting future virtual asset gains, while the First-In, First-Out method would apply as the default cost-base methodology.
Taxpayers may instead elect to use a weighted-average-cost method, but must apply their chosen method consistently.
The firm further said taxpayers would be required to retain relevant records for at least six years, making proper documentation important for users with transactions across multiple exchanges, wallets and digital assets.
PwC also identified Tax Identification Numbers as a key part of the new compliance regime, with VASPs required to enforce Tax ID requirements before activating accounts.
Another issue raised by the firm concerns the valuation of virtual assets. The guidelines require taxpayers to use an aggregator approved by the NRS, but PwC said the list of approved aggregators had not yet been published.
It warned that the absence of an approved list could create uncertainty, particularly for highly volatile assets where different pricing sources could produce different taxable values.
PwC also flagged the absence of a clearly stated effective date for the guidelines, saying this could make it difficult for VASPs and taxpayers to determine when the new requirements become operational.
The firm said platforms may need to modify their technology systems, customer onboarding procedures, tax calculations and reporting processes to comply with the framework.
The guidelines also address cross-border transactions involving virtual assets. PwC said converting naira into virtual assets for cross-border settlement would not constitute a taxable disposal, although stamp duty could still arise at the conversion stage.
The firm further questioned whether the tax collection responsibilities assigned to VASPs create an uneven compliance burden compared with other financial intermediaries.
Despite its concerns, PwC described the guidelines as an important baseline for taxation in Nigeria’s virtual asset market.
The firm said the framework provides greater clarity on taxable events, asset classification, gain calculations, withholding tax, VAT, stamp duty and transactions that are not immediately taxable.
It, however, said the effectiveness of the regime would depend on further clarification from the NRS, particularly on its legal authority, implementation timelines, valuation mechanisms and enforcement of transactions conducted outside regulated platforms.
The Issues
The main challenges identified by PwC are the legal basis for some withholding tax obligations, enforcement of informal peer-to-peer transactions, the compliance burden placed on VASPs, the absence of an approved valuation aggregator list and uncertainty over the effective date of the guidelines.
What’s Being Said
PwC considers the framework a significant step towards formalising taxation of Nigeria’s virtual asset market, but says important legal and implementation questions remain unresolved.
What’s Next
VASPs and other affected taxpayers will need to review their systems, records and tax processes against the new requirements, while further clarification from the NRS will be important on implementation, valuation, enforcement and the legal basis for some provisions.
Bottom Line
Nigeria’s new virtual asset tax framework provides clearer rules for crypto-related taxation, but PwC says its effectiveness will depend on resolving legal uncertainties and addressing the difficulty of enforcing tax obligations on transactions conducted outside regulated platforms.
