9 Sept 2019
NIGERIA: 5% VAT on All Online Purchases from January 2020
From January 2020, Nigerian bank card issuers and other electronic payment service providers will automatically collect 5% value added tax (VAT).
This proposal was made recently by Nigeria's Federal Inland Revenue Service (FIRS), as VAT is due on online purchases. Under Nigerian law, goods are VATable, regardless of whether they are sold online or offline. Banks, in effect, will be appointed as the agents responsible for ensuring that VAT is collected for online purchases and then remitted to the FIRS.
According the FIRS, VAT is rarely charged on online purchases at present, although such online purchases are not actually VAT exempt. In a recent interview, FIRS Chairman, Tunde Fowler, said: “I have not seen any local online store that charges VAT on purchases, and you cannot assume that items bought are VAT inclusive.”
Nigeria will not be the only country planning to introduce a programme that uses payment card issuers and e-payment service providers as collection agents. Mexico and Thailand have proposed similar laws that could go into effect next year. Argentina and Colombia are among those already looking to financial institutions to collect online taxes.
However, Taiwo Oyedele, Tax Leader from PwC Nigeria, has expressed caution over the proposals. He said: “In most cases, VAT should already be collected and declared by local merchants for online sales as part of current VAT processing procedures. The problem comes in poor collection practices by the FIRS. Furthermore, VAT due from international sellers is also collected on importation by Nigerian customs. As a consequence, there may be the danger of double taxation under the new scheme.”
He added: “The future is online, so government should encourage players in this space, not scare them away. In fact, online is easier to track for tax purposes because it leaves a trail, so one more reason to tread carefully.”