The Digital Assets Coalition (DAC) has called on the Nigeria Revenue Service (NRS) to abandon its proposed transaction-based taxation of virtual assets, arguing that such a framework would discourage crypto adoption, push trading underground, and ultimately shrink government revenue. In a position paper titled Tax the Profit, Not the Movement of Money, the coalition supports taxing capital gains from cryptocurrency investments but opposes levies on every transaction, regardless of whether investors profit or incur losses.
Coalition's Stance: Support for Taxation, But Fairer Approach
The DAC emphasized that it is not against taxing digital assets. Rather, it advocates for a system that taxes actual profits while imposing strict registration and reporting requirements on crypto platforms. According to the coalition, Nigeria's expanding digital asset market should contribute to state coffers, but taxing every fund movement rather than investment gains would unfairly burden ordinary users and businesses.
The coalition's position paper highlights that a profit-based tax model, as implemented in the United Kingdom, South Africa, and Brazil, has proven effective in generating revenue without stifling market participation. These countries focus on taxing investment gains rather than the mere movement of digital assets, a approach the DAC believes Nigeria should adopt.
Key Objections: Stamp Duty and Withholding Tax
The DAC's primary objections center on two proposed charges: a 1.5% stamp duty on every conversion between the naira and digital assets, and a 1% withholding tax on the total value of crypto sales. The coalition argues these fees apply even when investors suffer losses or transfer funds without making any profit. It warned that transaction costs could exceed exchange fees by several times, making regulated Nigerian platforms less attractive than offshore alternatives.
This could drive trading activity to unregulated platforms, undermining the NRS's goal of bringing the crypto market into the formal economy. The coalition stressed that such taxes would disproportionately affect small-scale users and could lead to a decline in overall tax compliance.
Impact on Ordinary Nigerians
The proposed framework would affect more than just crypto traders, the coalition said. It cited examples of families sending money abroad, small importers paying overseas suppliers, freelancers receiving payments in stablecoins, and students earning modest crypto rewards. These users could face taxes on remittances, business payments, and income that has already been taxed, while also dealing with increased compliance requirements.
According to the paper, this could discourage the use of digital assets for legitimate purposes and push users toward informal channels, reducing the effectiveness of the tax regime.
International Lessons: Failures of Transaction-Based Taxes
The DAC pointed to international examples, claiming that similar transaction-based crypto taxes in India, Kenya, and Turkey either failed to generate expected revenue or were eventually repealed or withdrawn after driving trading activity to offshore platforms. In contrast, the United Kingdom, South Africa, and Brazil focus on taxing investment gains, which has proven more sustainable.
The coalition argued that Nigeria should learn from these cases and avoid repeating mistakes that have hampered crypto adoption and revenue generation elsewhere.
Recommendations to the Government
Among its recommendations, the coalition called on the NRS to postpone implementation of the guidelines, hold wider stakeholder consultations, remove taxes on crypto transactions, collect taxes only in naira, protect small users through exemptions, and retain registration and reporting obligations for exchanges.
The DAC maintained that a profit-based tax regime would raise more sustainable revenue, improve compliance, and keep Nigeria's fast-growing crypto sector within the formal economy rather than pushing it offshore. The coalition's paper underscores the need for a balanced regulatory approach that fosters innovation while ensuring fair taxation.
Background: NRS Guidelines on Virtual Assets
Legit.ng earlier reported that the NRS has ordered cryptocurrency exchanges and other Virtual Asset Service Providers (VASPs) to collect a valid Tax Identification Number (TIN) from customers as a condition for opening accounts. The directive comes from the Guidelines on the Taxation of Virtual Assets, published on Monday, August 3, as part of a new regulatory framework covering cryptocurrencies, stablecoins, tokenised assets, and other digital assets.
Under the new rules, platforms including crypto exchanges, wallet providers, trading platforms, and peer-to-peer escrow operators must confirm a customer's Tax ID before the account can go live. This move is part of the NRS's broader effort to integrate the digital asset market into Nigeria's tax system, but the DAC argues that the current approach may be counterproductive.
