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Planned VAT On Online Purchases Not Double Taxation – Experts

Reacting to the news of the VAT on online purchases, Nigerian businessman and lawmaker, Oloye Akin Alabi, stated that instead of taxing digital firms out of business, the government should come up with policies and actions that will support them.

“The tech industry is one of the few bright lights in Nigeria in the last 10 years or so,” Alabi said. “Our government (states and federal) must come up with policies and actions that will aid and support them to grow, not just taxing them. It’s not hard to help them.”

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Many Nigerians just like Alabi are apprehensive of the proposed 5% VAT payment on all online purchases from next year, 2020. Mr Babatunde Fowler, Chairman of Federal Inland Revenue Service (FIRS), recently disclosed in an interview that FIRS may from 2020 ask banks to charge customers five percent VAT for online purchases when using bank cards.

The chairman pointed out that it was difficult to bring the digital economy into the tax net, however, the FIRS will address the issue of the digitalized economy very soon. He said, “Nigeria has not taken a position yet. But, we are meeting to see if we can come up with a global solution that we can all adapt to.”

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However, contrary to the opinion held by many Nigerians on the issue, tax experts have said the VAT on the digital economy is not double taxation. A tax expert at KPMG, Peter Nwaobi, explained that the proposed VAT on online purchases is not a double tax and there were no initial charges on purchases. Mr Peter Nwaobi said this in an interview with Business Insider.

According to Nwaobi, for every online transaction, there is always a five percent VAT on each item. “Before now, for every time you get online, the merchant already charged 5 percent VAT on it, either you see it on slip or not, it is there,” he said.

Nwaobi further explained that the existing fee is what the FIRS is running after as majority of the funds have not been captured in the tax net. According to him, this idea will allow the merchant to remit the 5 percent they have charged to the bank, acting as FIRS agent in this instance.

His colleague, Tax Regulatory & People Services Partner at KPMG, Adewale Ajayi also clarified further that, in actual fact the proposed tax charge is meant to address the issue of Nigerian shoppers on foreign sites (such as Amazon and Aliexpress) who avoid paying the VAT simply because the e-commerce platforms are not based in Nigeria.

In another interview with Business Insider SSA, Ajayi said that currently, the supply of goods and services attracts VAT of five percent. So when a Nigerian buys an item from a Nigerian-based online store (e.g Konga or Jumia), the Nigerian buyer will pay the VAT. But when the same Nigerian buys an item from Amazon or similar e-commerce platforms that are not based in Nigeria, the customer does not pay Nigerian VAT.

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“In this case, the Nigerian buyer on Amazon would have escaped paying the VAT simply because the e-commerce platform is not based in Nigeria,” Ajayi explained. “This is wrong as VAT is a consumption tax and it is the final consumer (the Nigerian purchaser) that should have paid the VAT. This is the issue that the FIRS is trying to address.”

Ajayi also stated that the proposed solution will only create a level playing field in respect of items bought on Nigerian-based e-commerce platforms and other platforms like Amazon. Thus, it should make the goods and services supplied by Nigerian e-commerce companies be competitive.

“Taxation is about equity and transparency,” Ajayi remarked, and Nigerians that shop online should be “prepared to pay VAT on purchases on e-commerce platforms, whether based in or outside Nigeria.”

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