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No to new online VAT

The Federal Inland Revenue Service (FIRS) has said it would impose Value Added Tax (VAT) on online transactions, local and international, with effective from January 2020. The Executive Chairman of FIRS, Mr Tunde Fowler, disclosed this at the African Tax Administration Forum (ATAF) Technical Workshop on VAT on Monday August 26, 2019 in Abuja. He said many countries had identified Nigeria as a good market for online businesses, so FIRS would explore the potential of generating revenue from online business transactions.

Mr Fowler explained that “VAT remains the cash cow in most African countries, with an average VAT-to-total tax revenue rate of 31 percent,” arguing that the statistics was a validation of the need for Nigeria to streamline the administration of this tax. He added that VAT revenue was shared in the ratio of 15 percent to the Federal Government, 50 percent to state governments and 35 percent to local governments.

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In May 2018, FIRS wrote to all commercial banks requesting for a list of companies, partnerships and enterprises with a banking turnover of N1 billion and above. This, the Revenue boss said, was aimed at ascertaining those companies that are compliant with the tax laws and those that are not. Fowler, who is also the chairman of ATAF, said that the African tax outlook prompts questions such as “Why does VAT contribute 51 percent to total tax revenue in Senegal but only 17 per cent in Nigeria? Why is the ratio on VAT refunds at 49 percent in Zambia, but only one percent in The Gambia?” He, therefore, charged participants at the workshop to find answers to the questions and address the gaps in their countries to improve VAT collection.

Except for a Nigerian who does not operate a bank account, there already exist too many charges on online transactions. Some of such existing charges include,  N52 for every fund transfer using a mobile application; N105 for every bill paid online to, for instance, subscribe to  satellite television or prepaid electricity bill. There is also another N50 Stamp Duty charged on transactions. Also, banks make deductions from customers’ accounts in the name of monthly Account Maintenance. There is also N2.50 VAT deduction from customers’ accounts for using Point of Sale (POS) machines to make payments.  Therefore, there are already multiple deductions from the bank accounts of Nigerians for online transactions. This gives the impression that it is an offence for Nigerians to use online platforms for transactions.   The introduction of new VATs will amount to excessive burden on Nigerians who, given the several online charges they pay, are already overtaxed.

Recently, issues were raised about the fact that Stamp Duty deductions from bank accounts of Nigerians for online transactions had not been properly accounted for. Since the collection began a couple of years ago, the amount generated from Stamp Duty has not transparently featured as part of the country’s revenue. When put together what has been generated is enough to fund a substantial part of Nigeria’s annual budget.

For Nigerians who are on salary, the proposed VAT is another layer of burden. They pay income tax from their salaries; banks make the deductions mentioned above for transactions from their bank accounts, and this is happening at a time when the value of the Naira against the Dollar is very weak, inflation is at double digits, and the economy is contracting instead of expanding. Apparently, the ordinary Nigerian is being squeezed to an unbearable point. Even self-employed youths who are struggling to make a living from online businesses will be at a highly competitive disadvantage with other offline marketers and business owners.

Instead of placing more burden on Nigerians, we call FIRS to shelve the fresh VAT on online transactions, and rather concentrate on reining in wealthy Nigerians who pay little or no tax.

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