Plans by the Federal Inland Revenue Service (FIRS) to commence collection of Value Added Tax (VAT) on online transactions as part of measures to shore up revenue target of N8 trillion set in the 2019 budget may not be sitting well with stakeholders in the segment.
In two separate interviews, the first in May and the second in August, Tunde Fowler, chairman of FIRS, said from 2020, banks may be mandated to collect 5 percent VAT from customers using bank cards for online purchases.
Since the August interview published by Premium Times went viral, many Nigerians who believe the move is an affront on cashless drive have taken to social media to condemn the plan. They also say it amounts to double taxation. Nigerians already pay different charges for online transactions.
“Welcome to Nigeria where we take five steps forward with the cashless policy and 20 steps backwards to the stone age of carrying cash around,” tweeted Ifeoma Solanke, a lawyer, from her handle @ifeoma_solanke. “What in the name of Zeus is 5% VAT on online card purchases? Aren’t we tired of double taxation?”
A former presidential aspirant, Garba Shehu, also tweeted from his handle @adamugarba that the Federal Government’s move was not strategic at a time when the country needed to catch up “organically” with the world in terms of digital development.
“Focus should be on digital inclusion not red tapes,” he said.
The Value Added Tax Act of 2007 governs the administration of VAT in Nigeria. VAT is levied at each stage of the production chain at 5 percent of the value of the taxable good or service supplied, but it is eventually borne by the final consumer, being a consumption tax, according to experts at Andersen Tax.
In essence, VAT collection is not a recent development. Consumers have always paid for it when they make purchases in physical stores but most companies do not remit the tax to FIRS contributing to the shortfall in the country’s revenue. The government in recent times has hinted that it might resort to increase in VAT to stem the tide.
Fowler, in the interview, had, however, expressed a preference for expanding the country’s tax base against increasing taxes. Efforts to achieve this expansion in the past had led to the launch of the tax amnesty programme in 2017 during which tax evaders and defaulters were encouraged to pay within a certain period without penalties. The FIRS claimed it was able to collect $47 million from the evaders. Fowler, however, suggested that getting over 40,000 companies “not doing the right thing” to comply has remained a big challenge.
In an email to BusinessDay, Jumia said it is one of the ecommerce companies that remits local taxes. It also pays all statutory taxes which include VAT, Withholding Tax and PAYE Taxes, and all the mandatory deductions legislated by law.
The company, however, recommended that the FIRS’ plan could be more efficiently executed were it to consult widely with key industry players within the e-commerce sector to understand the impact of its decision on the various stakeholders.
“Some of the attendant challenges that need to be addressed before the implementation will include how to differentiate trade and non-trade transactions, handling of refunds when a purchased item is returned by the customer, how to drive card payments among customers who might prefer cash on delivery to avoid paying the VAT, and how to prevent double taxation,” the company said.
Anthony Nwosa, CEO, Gomarket.com.ng, said the implementation plan might appear more difficult than the tax regulator may be seeing hence a proper consultation with all tiers of stakeholders in the online trading and ecommerce space just has to happen.
“Government policies at this time must be geared towards facilitating internal and external trade in order to stimulate the economy and create jobs. Consideration should be expanded to the possible impact on the entire ecosystem, and there has to be intentional balances to ensure this doesn’t ultimately stiffen the industry and lead to adverse consequences. Timing is also a very key consideration,” he explained in an emailed statement.
FRANK ELEANYA & MICHAEL ANI
