Everyone knows that I am a fan of government doing everything legal to collect taxes in Nigeria. Yes, if you say you are “a big man or a big woman”, you must pay a big man or big woman tax. Last year, I was among those that went and asked the Ministry of Finance to do something on online tax. I contributed in the technical brief. Because nothing was evident, the most viable option was to ask banks to “withhold” VAT. Yes, if you like your Netflix, Amazon, Kohl’s, Jumia, Tekedia and indeed any online service, be open to pay VAT to the Nigerian people. Of course, I get the concern – “they will steal it through corruption”. That is unfortunate but that does not mean that you should not pay taxes to Nigeria.
The good news is that government has a date – January 2020 for the collection of online VAT: “The Federal Inland Revenue Service (FIRS) says it will begin to impose Value Added Tax (VAT) on online transactions, both domestic and international, from January 2020. The chairman of FIRS, Tunde Fowler, disclosed this … in Abuja.”
We have thrown it out to Nigerians. Effective from January 2020, we will ask banks to charge VAT on online transactions, both domestic and international.
VAT remains the cash cow in most African countries, with an average VAT-to-total tax revenue rate of 31 percent. This is higher than the Organisation for Economic Cooperation and Development’s average of 20 percent.
This statistics, therefore, is a validation of the need for us to streamline the administration of this tax with the full knowledge of its potential contributions to national budgets.
It is, however, also bearing in mind the rights of our taxpayers,
VAT revenue is shared 15 percent to the Federal Government, 50 percent to state governments and 35 percent to local governments.
FIRS wrote to all commercial banks in May 2018, requesting for a list of companies, partnerships and enterprises with a banking turnover of N1 billion and above.
This activity is aimed at ascertaining those companies that are compliant with the tax laws and those that are not,” he said.
Why does VAT contribute 51 percent to total tax revenue in Senegal but only 17 percent in Nigeria? Why is the ratio on VAT refunds at 49 percent in Zambia but only one percent in The Gambia?” Chairman Fowler
Do not worry that our march to the digital economy and unlocking new sectors like ecommerce can be affected by this. Sure, there is risk that open market and cash payment will rise in the nation. Yet, we need to understand that effective tax collection is a path Nigeria must take if it hopes to have a future as a modern economy. We need to support this redesign in the nation.
Simply, ecommerce firms will lose many price sensitive customers, and some online payment fintechs may have to be concerned also. But Nigeria needs this, as a poor nation, and we cannot allow the privileged few to shop untaxed! I do not care about the sector-growth: whether it is online or offline, it is all commerce. We just have to grow while paying the taxes required to power Nigeria.
1. Advance your career with Tekedia Mini-MBA (Sept 13 – Dec 6, 2021): 140 global faculty, online, self-paced, $140 (or N50,000 naira). Click and register here.
2. Click to join Tekedia Capital Syndicate and own a piece of Africa’s finest startups with a minimum of $10,000 investment.