Several Nigerians have expressed their displeasure at the news of a proposed Value-Added Tax (VAT) payment on all online purchases from next year. The Chairman of the Federal Inland Revenue Service (FIRS), Babatunde Fowler disclosed in an interview that the tax agency may from 2020 ask banks to charge customers five percent VAT for online purchases when using bank cards.

Fowler pointed out that it was difficult to bring the digital economy into the tax net, however, the agency will address the issue of the digitalized economy very soon. “Nigeria has not taken a position yet. But, we are meeting to see if we can come up with a global solution that we can all adapt to,” he revealed.

Reacting to the disclosure, Nigerian businessman and lawmaker, Femi Alabi, stated that instead of taxing digital firms out of business, the government should come up with policies and actions that will support the sector.

“The tech industry is one of the few bright lights in Nigeria in the last 10 years or so,” Alabi said. “Our government (states and federal) must come up with policies and actions that will aid and support them to grow, not just taxing them. It’s not hard to help them.” 

However, contrary to the opinion held by a majority of Nigerians who have spoken against the tax proposal, experts have said the VAT on the digital economy is not double taxation. A tax expert at KPMG, Peter Nwaobi, explained that the proposed VAT on online purchases is not a double tax and there were no initial charges on purchases. 

According to Nwaobi, for every online transaction, there is always a five percent VAT on each item. “Before now, for every time you get online, the merchant already charged 5 percent VAT on it, either you see it on slip or not, it is there,” he said.

The tax expert further explained that the existing fee is what the FIRS is running after as majority of the funds have not been captured in the tax net. “This idea will allow the merchant to remit the 5 percent they have charged to the bank (acting (as) an agent in this instance).”

Moreover, the proposed tax charge is meant to address the issue of Nigerian shoppers on foreign sites (such as Amazon and Aliexpress) who avoid paying the VAT simply because the e-commerce platforms are not based in Nigeria, Tax Regulatory & People Services Partner at KPMG, Adewale Ajayi said.

In an interview with Business Insider SSA, Ajayi said that currently, the supply of goods and services attracts VAT at five percent. So when a Nigerian buys an item from a Nigerian-based e-commerce platform (such as Jumia or Konga), the Nigerian buyer will pay the VAT. But when the same Nigerian buys an item from Amazon or similar e-commerce platforms that are not based in Nigeria, the customer does not pay Nigerian VAT. 

“In this case, the Nigerian buyer on Amazon would have escaped paying the VAT simply because the e-commerce platform is not based in Nigeria,” Ajayi explained. “This is wrong as VAT is a consumption tax and it is the final consumer (the Nigerian purchaser) that should have paid the VAT. This is the issue that the FIRS is trying to address.”

In addition, Ajayi said the proposed solution will only create a level playing field in respect of items bought on Nigerian-based e-commerce platforms and other platforms like Amazon. Thus, it should make the goods and services supplied by Nigerian e-commerce companies be competitive.

“Taxation is about equity and transparency,” Ajayi remarked, and Nigerians that shop online should be “prepared to pay VAT on purchases on e-commerce platforms, whether based in or outside Nigeria.”

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