Nigeria to Tax Online Transactions: SMEs Kick Against it, Proposes This

The Federal Inland Revenue Service (FIRS) will start collecting 5% Value Added Tax (VAT) on transactions conducted online, both domestic and international effective January 2020.

This was made known by the Executive Chairman of FIRS , Mr. Tunde Fowler at the African Tax Administration Forum (ATAF) Technical Workshop on VAT held in the Federal Capital, Abuja.

Speaking on the new development, Fowler disclosed that a lot of countries had identified Nigeria as a good market and already selling their goods and service online to Nigerians and that there was the need to tap the potentials to generate more revenue for the country.

The Nigerian government recently complained of the decline in revenue generation prompting the recent summon of the revenue Chief.

Though the new proposed tax for online transactions is yet to get the nod of the President, there are indications he will approve the proposal.

Fowler speaking further during the event said, “Nigeria has been identified by some Chinese companies as a very good market. A lot of countries in Africa have identified Nigeria as a good market. And a lot of them are involved in online transactions. You might be wondering what have we decided to do in Nigeria? Like in every country, there is politics around it so we are throwing it out to Nigerians that 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 percent. This is higher than the Organization for Economic Cooperation and Development’s average of 20 percent. 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”.

Importance of Collecting VAT in Nigeria

According to Mr. Fowler, “In Nigeria, for example, VAT is critical to the development of projects at all levels of government. VAT revenue is shared 15 percent to the Federal Government, 50 percent to state governments and 35 percent to local governments”.

“FIRS wrote to all commercial banks in May 2018, requesting for a list of companies, partnerships and enterprises with a banking turnover of N1 billion and above. This activity is aimed at ascertaining those companies that are compliant with the tax laws and those that are not,” he said.

Fowler who also doubles as the ATAF chairman said that the Africa tax outlook gave some starting points on the questions to ask regarding some aspects of VAT. He also queried, “Why does VAT contribute 51 percent to total tax revenue in Senegal but only 17 percent in the Gambia”.

He charged participating African countries to seek ways of addressing the gaps in VAT collection.

SMEs Kick Against the Plan to collect VAT on Online Transactions

Small and Medium Enterprise (SME) owners kick against the federal government’s plan to charge 5% VAT on all online transactions.

Mrs. Rose Gyer, an SME consultant and Director General for Human Development and Entrepreneurship Development (GLOCHEED) said government should not always rush to impose tax instead seek ways to block leakages.

Mrs Gyer further stated that “SMEs run online shops because majority of them cannot afford shops. Having said that, the question that readily comes to mind is did the FIRS engage with operators of such businesses in the cyber space before arriving at such decisions? I don’t think the tax system should always think of impositions of programmes to increase the internal generated revenue, they should rather engage with stakeholders especially operators generating businesses for taxation to reason together on how to block the leakages for a more effective service delivery to citizens. This will positively impact on tax collections rather than impositions that would possibly lead to closure of businesses to increase the number of unemployment”.

“Government should not always rush to impose tax instead seek ways to block leakages” – Rose Gyer

However, Mr. Godswill Ayemoba, an Entrepreneur, said that if government imposed VAT on online transactions, it would not affect business owners much due to the fact that most online spenders are impulse buyers and are very spontaneous, making the burden light on business owners.

“Business that are thriving online will not have too much of an issue regarding the adjustment to accommodate this move from the government. The adjustment to include VAT could be made online with little effect to patronage and clientele.” Ayemoba said.

Though he accepted that the use of social media as a marketing tool can lead to clashes as this is where disgruntled citizens spend most of their time.

“Most online spenders are impulse buyers and are very spontaneous, making the burden light on business owners” – Godswill Ayemoba

Also read: App that Converts Customers to Buy More from Your Online Store

Meanwhile, according to the National Bureau of Statistics (NBS), the Federal Government generated N31.94bn from VAT in the second quarter of 2019.

Have you carefully analyzed the proposal?

Do you think it will affect online sales in Nigeria?

Let’s hear your thoughts…