What is the transaction/tax fee in coins & tokens?

Some call it “transaction fee”, some call it “tax fee”. What is the transaction fee that we encounter with some coins and tokens?

What should we pay attention to when buying and selling cryptocurrencies with this feature? Does the tax fee really work?

tax/transaction fee in crypto coins and tokens

Tax fee is not available in every coin and token. Only some coins use this feature.

This feature can be embedded in smart contracts of cryptocurrencies. A certain rate (1%, 5%, etc) is determined. Each transaction (purchase-sell-transfer) is deducted at this rate.

Where these deductions will be sent and how they will be used are at the discretion of the project owners.

In fact, how to apply this tax fee is entirely under the authority of the project/coin owner. Therefore, it may differ for each coin and token.

This tax fee is especially heavily used in meme coins in the BSC network. Some projects impose tax fees as high as 40%- 80%.

It is very important to know whether the coin you are trading has a tax fee. You have to consider the tax fee when setting the slippage rate on DEXs

Usage Areas of Transaction/tax Fee in General

Each coin is used for different purposes. However, tokens generally use these tokens as follows:

Distribute holders: Some of the collected tax fees are distributed proportionally to all holders.

Reward pool: Some of the tokens received as tax fee and another coin (BNB, BUSD, ETH, etc) are taken. And these coins are distributed proportionally to the holders.

Burn: Some of the tokens cut as a tax fee are burned.

Add liquidity pool: Tokens deducted as tax fee are added to the liquidity pool.

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Things to remember :-

Situation 1

👉 If you bought a token which has 10% tax on sales only then if you're selling at 10% profit, think again 🤔 are you even making any profits

Situation 2

👉 If you bought a token which has tax fee/transaction fee of 10% on both buying and selling, then to get profits you have to sell at a profit of above 20%

As sell tax 10% + buy tax 10 = 20%

Also this is mostly for the P2P wallets transactions, if you're using a exchange wallet transaction fees are less than 1% and have a minimum buys and withdrawals limitations

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