The taxation of the digital economy experienced some modification in the 2021 Finance Act which requires that companies restrict VAT obligations mainly to Digital Non-Resident Companies (who supply individuals who cannot self-account for VAT). The introduction of the 6% tax on digital services offered to Nigerians by non-resident companies, implies that Nigerians who visit Amazon, and other e-commerce platforms not resident in Nigeria will pay VAT on items purchased online.
Even though it will increase government revenue, it will also have an implication on the transfer of costs to customers, according to Taiwo Oyedele, Fiscal Policy Partner and Africa Tax Leader at PwC who spoke at the Nigerian Economic Outlook 2022 organised by the King’s Court Parish of the Redeemed Christian Church of God (RCCG), in a webinar themed, “The Finance Act for 2022 – Nigeria Fiscal Guide.”
What Mr Oyedele is saying
The changes made to the 2021 Finance Act empowers FIRS to assess Non-Resident Firms to tax on Fair & Reasonable Turnover Tax Basis on Turnover earned from providing digital services to Nigerian customers.
Oyedele stated that the FIRS has been empowered under the Finance Act 2021 to tax NRCs with digital significant economic presence in Nigeria. These include “electronic commerce, application stores, online payments, electronic data storage, online adverts, data transmission to recipients in Nigeria to tax on a fair and reasonable percentage of turnover derived from Nigeria.”
This means that Non-resident digital companies are now required to charge, collect and remit VAT to FIRS. Oyedele forecasts that implications for this will include increase revenue generation for the government, challenges with enforcement of compliance and also affected companies may pass cost to customers by way of higher prices.
What you should know
Recall Nairametrics reported earlier that the federal government disclosed that it would be charging 6% tax on turnover on e-commerce businesses provided by non-resident companies in Nigeria.
Minister of Finance, Budget, and National Planning, Mrs. Zainab Ahmed, during the public presentation and breakdown of the 2022 budget said Section 30 of the Finance Act designed to amend section 10, 31 and 14 of VAT is in relation to VAT obligations for non-resident digital companies and the mechanism that will be used is to restrict VAT obligations mainly to digital non-resident companies who supply individuals in Nigeria who can’t themselves self-account for VAT.
The introduction of the 6% tax on digital services offered to Nigerians by non-resident companies, implies that Nigerians who visit Amazon, and other e-commerce platforms not resident in Nigeria will pay VAT on items purchased online. This is expected to drive growth in Nigeria’s non-oil revenue.