There seems to be a permanent black hole in the finances of the country under this regime that requires taxing citizens to fill.
The Federal Government, through the Federal Inland Revenue Service (FIRS), has floated the idea of levying Value Added Tax (VAT) on online purchases. The stated rationale is to grow the revenues of the federal government. There is a need for the tax authority, the National Assembly and the Federal Government to examine this proposal carefully before its implementation.
Babatunde Fowler, FIRS Chairman, gave a hint of the plan in May. He told the News Agency of Nigeria, “Soon, we will ask banks to impose VAT on online transactions for purchases of goods and services. Not that it is something new; it actually should be in existence. We will certainly follow up to make sure that every VAT that is due to be collected is collected.”
Citizens have kicked against the FIRS plan. Naturally. There are grounds for the criticism mostly based on the record of this government; it spends more effort to increase non-oil revenue and has done little to make doing business easier. Rather than improve the business climate, its harassment of tax-paying big businesses fosters uncertainty.
Records from across the world show the positive effects of VAT on government revenues. That increment usually comes at the high cost of inconvenience to citizens and loss of goodwill by the government. Citizens have punished regimes for introducing VAT, adding to the number of items or increasing the rate where the ballot box is sacrosanct and reflects citizens’ wishes.
Any tinkering with VAT in the direction of adding to the burden on citizens, therefore, requires careful consideration, consultation and enlightenment. It is not enough to argue that VAT should apply to ecommerce ordinarily.
A VAT or goods and services tax applies to the increase in the value of a product or service at each stage of production or distribution. Nigeria’s VAT rate has been 5 percent since the introduction of the charge in December 1993 with effective commencement in 1994.
The muted inclusion of ecommerce transactions is only one in the efforts of the tax authorities to seek more revenue. There was an earlier kite about doubling the tax rate or increasing it to as much as 15percent allegedly to be in line with the rates in some neighbouring countries.
A key consideration before adding more items to the VAT list should be the impact on the cost of goods and services and quality of life of citizens. Additional revenues to the government should not come at the continued expense of citizens who do not as yet feel the impact of previous measures.
There is also the matter of the growth of online and digital transactions. The introduction of VAT may retard the growth of our evolving digital and online payment systems and electronic commerce. FIRS should work with its counterparts to grow the online space rather than constrict it.
Further, many of our micro, small and medium-sized businesses have yet to enrol and implement VAT. We consider that it is more productive to widen the net of firms registered and charging VAT for the goods and services they produce offline. Then there is the matter of accounting for the incremental value of transactions online given that the route to market often involves replication of the traditional. A significant challenge is ensuring that citizens do not suffer the jeopardy of double taxation on online purchases.
