Effective from January 2020, the Federal Inland Revenue Service (FIRS) has announced that it will begin to impose Value-Added tax (VAT) on online transactions, both domestic and international.

The Executive Chairman of FIRS, Babatunde Fowler made this disclosure at the African Tax Administration Forum (ATAF) technical workshop.

The commencement date of the VAT charges on online transactions, according to Fowler, would be subject to the government’s approval.

Speaking on the new development, Fowler noted that a lot of countries had identified Nigeria as a good market and many of them were into online businesses. He added that there was a need to tap the potentials to generate more revenue for the country.

Fowler’s words; “We have thrown it out to Nigerians. Effective from January 2020, we will ask banks to charge VAT on online transactions, both domestic and international.

“VAT remains the cash cow in most African countries, with an average VAT-to-total tax revenue rate of 31%. This is higher than the Organisation for Economic Cooperation and Development’s average of 20%.

“This statistics, therefore, is a validation of the need for us to streamline the administration of this tax with the full knowledge of its potential contributions to national budgets.

“It is, however, also bearing in mind the rights of our taxpayers,” he said.

Why this is important: For the FIRS’ boss, for a country that prioritises infrastructural development like Nigeria, VAT collection is critical for the sake of different projects at all level of the government.

Stakeholders kick: The Federal Government’s disclosed plan to introduce 5% VAT on online transactions had attracted criticism from Nigerians and industry stakeholders. Nairametrics engaged some tax experts to get their opinions. 

  • Omotolani Ashiru, Lead, Internal Audit, Compliance and Tax at UPS, stated that while this will be a good development for the government as revenue would increase, it is not a good time for Nigerians.
  • Ashiru said necessary infrastructure, sensitization and other necessary requirements are not yet available in Nigeria.
  • She also added that in the case of the VAT charges on an online purchase, there will be issues of multiple taxation as some e-commerce platforms like Jumia are already charging VAT on their sales since there are no mechanisms in place for the banks to separate VAT inclusive services and products from non-vatable transactions. 
  • The tax expert further stated that the online purchase tax proposal appears at odds with Nigeria’s long-held ambitions for a cashless economy, given the possible effect of dissuading online purchases.
  • She maintained that if launched, it also adds to a growing number of existing charges which Nigerian bank cardholders already pay, including the card maintenance fee. 

Similar to Ashiru’s point of view, Amanze stressed that consumers would rather not purchase goods online, which poses a significant drop in sales or would rather opt for the traditional model of paying for anything they want to purchase, which renders the Federal Government’s commitment to financial inclusion useless. 

Amanze also stated that should the VAT charges be effected, double VAT charges on consumers are certain, as most e-commerce companies at present charge you for VAT. According to Amanze, consumers would rather transact with cash to avoid the VAT charges.