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PricewaterhouseCoopers (PwC) has outlined the penalties that could apply to taxpayers and merchants who fail to comply with Nigeria’s emerging virtual assets tax regime.
The tax and audit firm disclosed the applicable sanctions in a report titled “Taxing the Intangible: A Critical Analysis of the NRS Guidelines on Taxation of Virtual Assets,” released as the Nigeria Revenue Service (NRS) advances the implementation of its virtual assets tax guidelines.
According to PwC, taxpayers could face a N10 million penalty for the first month of default and N1 million for every subsequent month where applicable.
The firm also noted that failure to deduct tax at source could attract a penalty equivalent to 40 per cent of the amount that should have been deducted.
Where tax has been deducted but not remitted, PwC said the defaulting party could be liable for a 10 per cent annual charge, in addition to interest based on the Central Bank of Nigeria’s Monetary Policy Rate (MPR), as well as the outstanding principal amount.
Virtual asset transactions could trigger multiple taxes
PwC explained that a single virtual asset transaction could result in more than one tax obligation depending on the event that triggers the liability.
Under the guidelines, income tax applies to individuals at progressive rates and to companies, other than qualifying small companies, at 30 per cent on taxable gains from the disposal of virtual assets and income or gifts received through virtual asset activities.
The firm said such income could include employment income, professional fees, mining rewards, staking rewards, decentralised finance (DeFi) rewards, airdrops and other income generated from virtual asset activities.
One of the most significant technical provisions identified by PwC is the dollar-referenced methodology for calculating taxable gains on virtual asset disposals.
Under the approach, taxpayers calculate gains by comparing the dollar value of an asset when it was acquired with its dollar value at disposal. The resulting dollar gain is then converted into naira using the applicable CBN/NAFEM exchange rate on the disposal date.
PwC said the methodology excludes currency depreciation from the taxable gain, preventing taxpayers from being taxed on nominal naira gains that arise solely from exchange-rate movements.
The firm described the approach as a pragmatic policy choice, noting that taxing nominal naira gains on assets that are inherently dollar-denominated could otherwise result in disproportionately high effective tax rates on actual economic returns.
However, PwC cautioned that the methodology could also produce different outcomes depending on movements in the value of the underlying asset and exchange rate.
Taxpayers urged to register and obtain Tax IDs
PwC advised individuals and businesses involved in virtual asset activities to register for tax and obtain a Tax Identification Number (Tax ID) as the NRS moves towards implementation.
The firm warned that Nigerian Virtual Asset Service Providers (VASPs) could potentially restrict or stop processing transactions involving customers who have not met applicable tax identification requirements.
PwC also raised concerns about the absence of a clearly stated effective date for some of the provisions, warning that VASPs could face challenges implementing the requirements without adequate preparation.
It urged VASPs to review their systems to ensure they can calculate, withhold and remit applicable taxes, including where obligations may need to be accounted for in token units.
The firm noted that businesses may also need to assess whether aspects of the NRS position should be challenged where they appear inconsistent with existing withholding tax regulations.
Record-keeping and cost basis requirements
PwC further advised taxpayers to establish a consistent methodology for determining the cost basis of virtual assets from the beginning of their activities.
It recommended the use of either the First In, First Out (FIFO) or Weighted Average Cost method, noting that taxpayers cannot retrospectively switch between methodologies.
The firm also stressed the importance of maintaining comprehensive transaction records, with taxpayers required to retain relevant documentation for at least six years.
While acknowledging that implementation could present technical and operational challenges for taxpayers and VASPs, PwC said the guidelines provide a baseline for compliance as Nigeria develops its regulatory and tax framework for the rapidly expanding virtual assets market.
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