FG’s proposed imposition of VAT on online transactions

THE statement by Mr Babatunde Fowler, executive chairman of the Federal Inland Revenue Service (FIRS), that the service may, as from next year, ask banks to charge customers five per cent Value Added Tax (VAT) on online purchases leaves much to be desired. Though VAT is legal, being a product of the nation’s laws, its proposed imposition on online transactions has grave implications for the economy and deserves reconsideration by the government.

Going by the laws of the land, every transaction within the country already have VAT built into it. For instance, every purchase made on Jumia or Konga, or every air ticket bought online, comes with a VAT because the seller is empowered by law to add VAT to the cost of purchase. According to Section 4 of the VAT Act 2007 (as amended), VAT is calculated at a flat rate of five per cent on all goods and services sold in Nigeria.

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In accordance with the Section 15 of the Act, subsection 1, businesses operating within the country are mandated to calculate the amount of VAT received from customers in a month and remit same to the FIRS by the 30th day of the month. The implication of this is that save for goods and services exempted from VAT, all those who buy goods and services pay VAT. So, if VAT is already built into the cost of an article, why should the FIRS ask banks to do another billing? Won’t that be double taxation?

Given the position of the Act, the statement by Mr Fowler is suggestive of two things, desperation to increase the revenue generated by the service or arrant ignorance of the law from where he derives his powers as the FIRS boss. While both are regrettable, we are persuaded to believe that the former is the propelling force behind the proposed imposition.  Indeed, Fowler has not hidden his desire to increase the government’s tax revenue. That is okay. He should be applauded for that. And to his credit, since his assumption of office as the executive chairman of FIRS, the revenue of the service has been on the upswing. However, his determination to enrich the government should not be at the expense of citizens and businesses. The FIRS’s ability to continually generate tax revenue for the government is dependent on the prosperity of the people. So, in his quest to increase his service’s revenue generation, he should avoid killing the goose that lays the golden egg.

Unless this proposal is nipped in the bud and prevented from becoming an enforceable law, it is going to injure the nation’s budding online businesses because many Nigerians, in order to avoid double payment of VAT, would resort to cash transactions and this has the potentiality of killing a whole industry. To say the least, the proposition will disincentivise Nigerians who are trying to energise the economy through their innovative activities.

Then, for a while, the Central Bank of Nigeria (CBN) has been promoting cashless transactions which quite a number of Nigerians are buying into. If the FIRS, out of sheer desire to make more money for the government, distorts a policy that is already gaining ground, would that not amount to government agencies working at cross-purposes?

To avert the disaster which the Fowler proposition represents, it is best to stop it dead in its tracks.

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