Recently, the Federal Inland Revenue Service (FIRS) revealed its plan to impose VAT on online transactions in Nigeria. Value Added Tax (VAT) is a tax imposed at 5% on the cost of goods and services supplied in Nigeria except for items specifically exempted or zero-rated under the VAT Act. A taxable person will charge and remit VAT within 21 days of the following month of transaction. However, there is an exception to this rule. Parastatals and oil and gas companies can withhold and remit VAT on invoices payable to third parties.
Furthermore, FIRS requires the support of banks as collection agents. Banks will play a major role in the VAT enforcement drive. As authorized agents of FIRS, banks will levy VAT on online transactions relating to the purchase of goods and services. In other words, banks will collect and remit VAT on the sales proceeds of online businesses. FIRS aims to achieve its 2019 revenue target of NGN 8 trillion through this VAT recovery approach.
Based on the foregoing, five (5) probing issues are evident. They are;
- Is FIRS empowered to impose VAT on online businesses?
- Is the VAT on online business a new form of tax?
- Won’t the nomination of banks as collection agents of FIRS lead to double taxation?
- What happens if a company or government ministry withholds VAT at source on invoices payable to an online business?
- Will the same rule apply to foreign companies that offer (online) goods and services to consumers in Nigeria?
Is FIRS empowered to impose VAT on online businesses?
FIRS is responsible for assessing, collecting and accounting for tax and other revenue payable to the Federal Government of Nigeria. As an administrative body, FIRS can enforce VAT compliance of businesses but cannot impose a new type of tax.
Is the collection of VAT on online business a new form of tax?
No, VAT on online business is not a new type of tax. Rather, the method of collection is a new way of capturing VAT on goods and services which ought to have been paid by a taxable person.
Won’t the nomination of banks as collection agents of FIRS lead to double taxation?
The nomination of banks as collection agents of FIRS may lead to double taxation if the taxpayer has remitted VAT on taxable goods or services and the bank charges VAT on the same transaction. For instance, if a business charges and remits VAT on an invoice issued to a customer while the bank also levies VAT on the sales proceeds in the company’s bank account.
Should oil and gas companies and government agencies still withhold VAT on invoices payable to an online business?
Oil and gas companies and government departments are required to withhold VAT on invoices payable to, for example, online business and remit the amount withheld to FIRS. Double taxation will occur if a company and the bank charges VAT on the same revenue. Therefore, FIRS will need to determine if banks should collect VAT on transactions with oil and gas companies and government agencies.
Will the same rule apply to foreign companies that offer goods and services (online) to consumers in Nigeria?
The bank account for sales proceeds of most international e-commerce companies resides in an offshore location. Can FIRS ensure that e-commerce companies located overseas play by the same rules as the local entities? E-commerce business has increased the risk of VAT compliance for companies operating in many jurisdictions. Moreover, most tax authorities across the globe face the issue of taxation of the digital economy plus the worrisome loss of tax revenue. The Nigerian tax authority also has its own share of this issue.
Conclusion
Even though FIRS wants to meet its revenue target for 2019, a traditional VAT recovery approach is unsuitable for online businesses. FIRS should reconsider the sales peculiarities of online businesses as well as corroborate with tax authorities in other countries that have boosted digital VAT compliance.
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