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VAT charges on online transactions will cripple e-Commerce businesses 

The Federal Government will implement VAT on all online transactions. Find out how this affects you.



FIRS, VAT, Tax, Dangote, FHC faults FIRS using banks as tax agents , FIRS boss, Babatunde Fowler’s tenure ends, replacement disclosed 

Many stakeholders and experts have expressed their concerns over the Federal Government’s (FG) plan to enforce a 5% Value Added Tax (VAT) on all online transactions. Many of these industry stakeholders opined that the move would constitute a threat to businesses that operate in the country, particularly those in the e-commerce industry. 

Recall that the Chairman of the Federal Inland Revenue Service (FIRS), Tunde Fowler, revealed that the Federal Government would by 2020 commence the VAT charges as part of plans to raise more revenue to fund the country’s budget. 

What this means: If the proposed directive is implemented, payment providers, credit cards and other electronic payment schemes will hold back 5% VAT on any transaction between a consumer and an online seller. This is where e-commerce comes into play. 

e-commerce, VAT

Juliet Anammah, CEO, Jumia

[READ MORE: CBN Governor finally breaks silence on FOREX restrictions for food imports]

Rise of e-Commerce: It is common knowledge that Nigeria is fast growing in terms of cashless, digital payment, and electronic banking system services.

  • With ATM transactions dominating the volume of electronic transactions and the Nigerian Inter-Bank Settlement System Instant Payment dominating in value, the demand of electronic transactions has attracted payment investors from Europe and Asia, who are investing in the country’s payment systems.
  • Nairametrics understands that the e-commerce industry is one that has quietly grown into a significant economic force in Nigeria, as some business ventures rely solely on their digital operations.
  • In view of increasing digital purchases in the country, American consulting firm, McKinsey estimated that e-commerce spending in Nigeria is presently at $12 billion and projected to reach $75 billion in volume per annum by 2025. 

Looming threat: Should the 5% VAT charges on all online transactions are effected next year, the growth of the country’s FinTech industry will slow down. Presently, Nigerians are gradually responding to FinTech initiatives, and despite all the campaigns, quite a number of people are still not financially included. 

  • Just recently, the Central Bank of Nigeria (CBN) raised Nigeria’s financial inclusion target to 95% from 80% set in 2012 and extended the target year to 2024 from 2020.
  • Earlier in the year, the CBN had expressed optimism that the 80% financial inclusion target will be reached by 2020.
  • With one year to the 2020 target and recent data from Enhancing Financial Innovative and Access (EFInA) indicating that 36.8% eligible Nigerian adults still do not have access to financial services as of 2018, the likelihood of achieving the 80% financial inclusion target by 2020 became slimmer and necessitated the review.
  • While FinTechs are filling the gap between the consumers and e-commerce businesses, they (FinTechs) will experience a significant threat, as consumers would rather opt for the traditional method of making a payment, which may not necessarily incur the 5% VAT on their purchase.

On the other hand, the e-commerce businesses would opt for putting in place infrastructure that would enable non-digital payments to sustain the growth of their customer base. 

[READ ALSO: Beer Wars: International Breweries takes number 2 market share from Guinness Plc] 

Bad criticism: The Federal Government’s disclosed plan to introduce 5% VAT on online transactions has attracted criticism from Nigerians and industry stakeholders. Nairametrics engaged some tax experts to get their opinions. 

  • Omotolani Ashiru, Lead, Internal Audit, Compliance and Tax at UPS, stated that while this will be a good development for the government as revenue would increase, it is not a good time for Nigerians.
  • Ashiru said necessary infrastructure, sensitization and other necessary requirements are not yet available in Nigeria.
  • She also added that in the case of the VAT charges on an online purchase, there will be issues of multiple taxation as some e-commerce platforms like Jumia are already charging VAT on their sales since there are no mechanisms in place for the banks to separate VAT inclusive services and products from non-vatable transactions. 
  • The tax expert further stated that the online purchase tax proposal appears at odds with Nigeria’s long-held ambitions for a cashless economy, given the possible effect of dissuading online purchases.

She maintained that if launched, it also adds to a growing number of existing charges which Nigerian bank cardholders already pay, including the card maintenance fee. 

What lies ahead: When asked on the future of e-commerce, should VAT be charged on digital transactions, Ashiru said that the entire industry will experience a decline in sales as consumers would find alternative means of purchase.

  • This, according to her, will also lead to a decline in the use of cards online. Ashiru said there’s no other way to look at the proposed policy than to see it as a card payment killer.
  • Ashiru, however, expressed that what the FIRS should instead focus on is tracking and ensuring the remittance of VAT already being charged by online merchants.
  • While the Head of tax and OTC, Expand Global Industries Limited, Ikenna Amanze, isn’t sure about the government’s intention to introduce the 5% VAT charges on online transactions, the former tax consultant to KPMG, opined that the move will cripple e-commerce businesses in the country. 

Similar to Ashiru’s point of view, Amanze stressed that consumers would rather not purchase goods online, which poses a significant drop in sales or would rather opt for the traditional model of paying for anything they want to purchase, which renders the Federal Government’s commitment to financial inclusion useless. 

Amanze also stated that should the VAT charges be effected, double VAT charges on consumers are certain, as most e-commerce companies at present charge you for VAT. According to Amanze, consumers would rather transact with cash to avoid the VAT charges. 

“The VAT charges will affect e-commerce. I believe a number of people will rather want to make cash payment and this means that the eCommerce guys will have a lot to deal with, like the risk of theft. Essentially, this will aggravate the cost profiles of these guys. Because what it means is that they will develop infrastructure to be able to handle cash and I’m not sure they will want to do that since there is already a cost to handling the cash. They would not want the third merchants to handle their cash as I don’t think there is any infrastructure for that yet.” 

[READ FURTHER: 5 things Buhari’s new Finance Minister must do within 100 days]


The upshot: While the Federal Government’s decision to expand its tax net for the sake of revenue increment, as against increasing the VAT rate to 10% is laudable, it is pertinent to note that the move doesn’t make any economic sense at present.  

As Ashiru stated, going by a recent report by the United Nations (UN), 98 million Nigerians are now living in multidimensional poverty. Normally, in this regard, the government’s focus should be on putting in economic policies to drive and boost local trade and income, as against putting more tax burden on already poor citizens. 

Famuyiwa Damilare is a trained journalist. He holds a Higher National Diploma (HND) in Mass Communication at the prestigious Nigerian Institute of Journalism (NIJ). Damilare is an innovative and transformational leader with broad-based expertise in journalism and media practice at large. He has explored his proven ability in the areas of reporting, curating and generating contents, creatively establishing social media engagements, and mobile editing of videos. It is safe to say he’s a multimedia journalist.



  1. Salewa

    August 21, 2019 at 9:05 am

    “In simple terms, when you try to send a family member N50,000, the Federal Government is entitled to N2,500 which you will be charged as VAT.”
    The above analysis is incorrect. There is no VAT on money transfer. The only VAT applicable to transfers is the VAT on transfer charge.

    VAT is charged when value is exchanged for money. So only online trade transactions will fall under the net.

    • Mikel

      September 12, 2019 at 3:44 pm

      So does this mean it will not affect me when i use a Fintech app?

  2. Dan

    August 21, 2019 at 6:08 pm

    I think people are either being deliberately narrow minded or just too lazy to read about the proposed taxes online payments especially as it relates to e-commerce merchants. When you pay for Dstv on Quickteller or for Spectranet internet on Jumia One, these companies don’t charge taxes for these transactions. These are services that they are providing that at the least they should be charging the customary 5% VAT upon but they don’t. Try buying stuff on Amazon or Ebay and you will see taxes applied with different rates for different states. If your buying or selling items on an e-commerce site, its the same as at Wuse or Balogun market only the venue is virtual. Therefore, government is entitled to tax you. All these war mongering to stir up tensions is not helping.

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Analysis: Airtel Nigeria is winning where it matters

Airtel has left no stones unturned in ensuring that its provisions are top-shelf – subscribers to the network, of course will have their own ideas.  



Analysis: Airtel Nigeria is winning where it matters.

Airtel might have won our hearts over with internet-war adverts starring our favourite tribal in-laws, but its fundamentals are what will make us the bucks that keep us happy. Airtel Africa Ltd is a subsidiary of Indian telecoms group, Bharti Airtel Ltd; the group has left no stones unturned in ensuring that its provision of prepaid plans, credit transfers, mobile internet services, messaging, roaming facilities and more, are top-shelf – subscribers to the network, of course, will have their own ideas.

Since last year when Airtel Nigeria became the second telecommunication company in Nigeria listed on the NSE, the company has experienced a steady level of growth. With a presence in 14 African countries, the group’s strength lies in its diversity with stronger companies mitigating the poor performances of others.

Performance Overview: Airtel Africa 

Airtel Africa’s report for the year ended March 2020, revenue jumped by 10.9% from $3.1 billion at the year ended 2019 to $3.4 billion in 2020. The consolidated profit before tax also jumped by 71.8% from $348 million in 2019 to $598 million in 2020. However, profit for the period dropped by 4.23% with earnings of $408 million in 2020 from the $426 million it had earned in 2019. A reason for this is the tax figure that moved from a credit of $78 million in 2019 to tax payments as high as $190 million in 2020. Total assets also jumped by 2.41% from 2019’s value of $9.1 billion to $9.3 billion in 2020 primarily as a result of their acquisition of more property, plant, and equipment (PPE). The total customer base grew by 9.3% to 99.7 million for the year ended.

Full Report here.

Revenue growth of 10.9% was driven by double-digit growth in Nigeria and East Africa. However, the rest of its African operations experienced a decline in revenue. Its success in Nigeria is especially commendable, considering the fact that the company lost more than 100,000 subscribers in Nigeria between December 2019 and January 2020. Raghunath Mandava, Chief Executive Officer, remarked that the results which were in line with the group’s expectations, “are clear evidence of the effectiveness of our strategy across Voice, Data and Mobile Money.”

(READ MORE: NCDC and NNPC-IPPG reinforce #TakeResponsibility theme with multi-lingual campaign)

Behind The Numbers – Nigeria

Airtel Nigeria’s performance indicates the company is making the right calls in a very competitive industry. Nigerians are fickle when it comes to data and voice but will spend if the service is right. The company grew its data revenue by a whopping 58% to $435 million a sign that its strategy to focus on data is working. Voice Revenues for the year was up 15% to $850 million. In total, Airtel Nigeria’s revenue was up 24.4% to $1.37 billion. Ebitda margin, a number closely watched by foreign investors 54.2% from 49% a year earlier. Operating profit for the year ended also jumped by 52.6% for the year from 2019 and 32.4% from Q1 2019. Total customer base in Nigeria also grew by 12.5%.

Regulation forces Airtel Africa to initiate shares listing in Malawi , Analysis: Airtel Nigeria is winning where it matters.

Deal book 300 x 250

Nigeria is surely critical to Airtel Africa’s future seeing that it contributes about one-third of its revenue. Recent results thus indicate it is winning where it matters most and it must continue to stay this way if it desires to survive a brutal post-COVID-19 2020. Telcos are expected to be among the winners as Nigerians rely more on data to work remotely but there are other players in this game. Concerning the impact of the pandemic, he explained that at the time of the approval of the Group Financial Statements, the group has not experienced any material impact arising from the impact of COVID-19 on its business.

On cash flows…

The group has also taken measures to enhance its liquidity. The CEO explained that it is moving its focus to enhance liquidity towards meeting possible contingencies.


“Having considered business performance, free cash flows, liquidity expectation for the next 12 months together with its other existing drawn and undrawn facilities, the group cancelled the remaining USD 1.2 billion New Airtel Africa Facility. As part of this evaluation, the group has further considered committed facilities of USD 814 million as of date authorisation of financial statements, which should take care of the group’s cash flow requirement under both base and reasonable worst-case scenarios.”

To this end, they have put in the required strategies to preserve its cash as its cash and cash equivalents, consequently, jumped by 19.1%.

(READ MORE: COVID-19: MTN says it has put strict measures in place to preserve resources)

Buying opportunity

Investors looking at this impressive result will be wondering if this portends a buying opportunity. Airtel Nigeria closed at N298 on Friday and has remained at this price for about a month. The stock is quite illiquid and is not readily available to buy.

It’s the price to earnings ratio of 4.56x makes it quite attractive. Further highlighting this opportunity is its price-to-book ratio which is as low as 0.5273, suggesting that the stock could be undervalued. Whether it is available to be bought, is anyone’s guess.





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Analysis: Nestlé strong but exposed.

Being a market leader is great, but in times of economic despair, it can quickly turn you into prey.



Why Nestle Nigeria’s return remains strong - EFG Hermes, Nestle Nigeria Plc appoints new Director, Nestle Plc: FY 2019 Revenue beats estimate; but profit underperforms

With about six decades of being the choice companion for families within Nigeria and the diaspora, Nestlé Nigeria Plc has positioned itself as one of the largest food and beverage companies on the continent. Owing to the expansive growth of Nigeria’s population – one projected to reach 300 million by the year 2030, as well as the growing middle class, the FMCG sector has a very positive outlook.

Consequently, Nestle’s leadership in the industry and its huge market size expectedly gives it a huge advantage. However, with the global economy barely racing against the impact of the Covid-19 pandemic, even the brimming FMCG sector will experience its own level of disruption.

Nestle’s recently released Q1 2020 financials reveal a revenue decline of 0.9%, as it dropped to a marginal ₦70.33 billion from the ₦70.97 billion turnover it garnered in Q1 2019. The profit before tax also experienced an 8.7% drop while the profit after tax had a 12.84% drop, both yielding ₦17.5 billion and ₦11.2 billion respectively, for the first quarter of this year. This is predominantly owing to its increased losses from its overseas activities.

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The company procures all of its raw materials on a commercial basis from overseas and local suppliers; consequently, the percentage of its supplies dependent on international suppliers had a negative impact on its Q1 2020 financials. Its profits were plagued by a foreign exchange loss of ₦154.7 million from ₦18.9 million, an even higher loss of 720.6%. While the company did not disclose the value of its export revenue, we believe it too might have suffered from reduced exportation in the latter part of the quarter.

The group has since been taking on expansionary projects, such as its launch of a second beverage production plant in Ogun State in February of 2018. The company, on a continuous basis, explores the use of local raw materials in its production processes, contributing its own quota to the Nigerian economy.

READ MORE: Polaris Bank’s profit rises to N26.2 billion from N2.8 billion

Just last week, Nestlé’s stocks went up 2.56% to close at ₦1000, a price it still currently holds today after markets closed. Its price to earnings ratio is 18 and its earnings per share (EPS) of 55.54, signal an investor sentiment of confidence. However, its high price to book ratio of 13.9865 reveals that the company is slightly overvalued and its price of ₦1000 makes it attractive primarily to institutional investors that can afford to purchase large volumes of the stock enough to benefit from its steady growth in value. The company had proposed a dividend payout of ₦45 per share. This also comes after paying ₦25 per share interim dividends earlier. Its dividend yield at the time of writing this is 7%, further heightening the possibilities for the income investor.

Deal book 300 x 250

While the company has strong fundamentals governed predominantly by its position as a market leader, its years of experience, and its existence in the FMCG sector, it too might not have a smooth sail in the coming quarter. Its overseas business from both the supply and the demand sides are expected to experience a further decline, ultimately resulting in an even lower relative turnover and lower earnings.

READ MORE: Cadbury Nigeria reports N638.9 million profit for Q1 2020


We also expect the decline in average disposable income of Nigerians from loss of jobs and an overall wariness of the economic impact of the pandemic, to further drive down turnover; however, sound operational efficiencies and cost control/ profit strategies by the group could ease the burden. The company fundamentals remain strong but its exposure to consumer disposable income remains a major concern. There is always a cheaper alternative and when your pocket empties your choice for cheaper substitutes swells.

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Analysis: MTN’s blow out Q1 profit vs Covid-19 headwinds  

Covid-19 does posses some risk for the company, particularly in the Nigerian context.



Analysis: MTN’s blow out Q1 profit vs Covid-19 headwinds  

If there is any network that has grown with its audience in Nigeria, it is MTN. With its most active users covering a demography of age 18 to 27, it is the network for the tech-age youth. From keeping them up all night with friends for Extra Cool calls to the nostalgic adverts, the network has had its fair share of growth – and signals show no sign of it slowing down.

Just like its brand, the company has strategically positioned itself and made expansionary decisions to get it to where it is – the second most capitalized stock in the NSE. MTN Nigeria’s (MTNN) Q1 2020 financials show that the company has it good and we’re not surprised 

Its results reveal a great quarter for the telecommunications giant with a 16.7% gain in revenue, making 329.1 billion in the first quarter of this year in comparison to the 282.1 billion it made in the comparative quarter, Q1 2019. The telecommunication industry has naturally enjoyed a spike in usage since the last month of the quarter owing to the enforced lockdown, and its streak is still in motion.

READ ALSO: Analysis: GTB is minting profits but CBN is squeezing its cash.

With a 51.1 billion profit for the period in comparison to Q1 2019 of 48.4 billion, it disclosed profits 5.9% higher than last year – even with increased finance costs of 25.3% percent revealing the capital-raising measures taken by the group to stimulate its operations. It was also in line with this that the company recorded a jump of 103.5% in interest expense on borrowings from 7.9 billion in Q1 2019 to 16.1 billion in Q1 2020. Total value also recorded a jump as there was a 35.3% growth in the group’s net asset from Q1 2019’s 145 billion to Q1 2020’s 196 billion. 

Its revenue figure is defined by a jump in voice calls of 6.14% from the 182.8 billion earned in Q1 2019, to its Q1 2020 194 billion turnovers.  However, it is nothing compared to the 58.84% increase in revenue derived from local data usage (excluding roaming data) in the quarter from Q1 2019. Value-added service and digital services also witnessed a jump of 33.93% and 12.11% respectively. Having settled the $2 billion claim for back taxes it was plagued with last year that swayed investor confidence, it certainly came back strong this year. 

Naturally, the lockdown has contributed its fair share to the performance of the stock though most of this will reflect in its second-quarter results. With more people using their phones, we expected a spike in revenue governed by increased data usage. This trend is bound to be higher in the second quarter as more Nigerians choose to work from home relying on internet data to power their tasks. And for those without jobs, the internet serves as a perfect companion in both times of need and despair. 

READ MORE: MTN Nigeria: Accelerated growth in data revenue to buoy earnings despite soft macro conditions

The telecommunication industry itself is a growing one; Nigerian Communications Commission (NCC) reveals that as at Q4 2019, the telecoms industry contributed 10.60% to the GDP of the country and the total active telephone subscribers in Nigeria as at January stood at 185.7 million. With MTNN holding the largest market share of active telephone subscribers 38% of GSM subscribers and 43% of internet subscribers, there is no doubting its growth trajectory.  

Covid-19 does posses some risk for the company, particularly in the Nigerian context. In times past, the government looks for who to prey when its revenues are faltering. MTN was once a prey and it paid a huge price for falling into the government’s trap. As the economy falters more eyes will focus on organisations that are posting monstrous profits. Taxes, penalties, donations should interest the government and MTN would be careful to protect investor interest while giving to Ceasar its due.


READ MORE: Surviving the looming recession in the Nigerian tech space

MTNN and the Market 

MTNN’s share price has had a turbulent 2020. The stock is up 6.6% YTD and fell to a year low of N90 in March. At a price-earnings ratio of 11.3x investors are bullish about its ability to continue to deliver impressive growth. MTN has had a nice ride since its listing about a year ago.  The first wave was observed within 48 hours of its being listed on the NSE for the first time in May 2019 when it was immediately ranked amongst the NSE top 5. It also didn’t take a couple of months before it shook the market by becoming the first on the NSE, temporarily surpassing Dangote Cement.

Having settled its tax disputes, its shares hit an all-time high of N159 per share before pulling back as investors worried about the faltering economy. MTN share price is still a bit off its 2020 high of 127  and could well be on its way there. 

The price closed at  112 on Monday 11th May with a 52-week range of 90 and 159.3


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