The federal government has disclosed that it would be charging 6% tax on turnover on e-commerce businesses provided by non-resident companies in Nigeria.
This was disclosed by the Minister of Finance, Budget, and National Planning, Mrs. Zainab Ahmed, during the public presentation and breakdown of the 2022 budget held in Abuja, on Wednesday.
The tax collection is in line with the provision of the 2021 Finance Act, which empowered the FIRS to access CIT on the turnover of a foreign digital company involved in transmitting, emitting, or receiving signals, sounds, messages, images, or data of any kind including e-commerce, app stores, and online adverts.
Recall that President Muhammadu Buhari, on the 31st of December 2021, signed the 2022 budget of N17.126 trillion, alongside the passing into law the Finance Bill, which ensured the immediate kick-off at the start of the new year.
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What the minister is saying
According to the minister, “Section 30 of the Finance Act designed to amend section 10, 31 and 14 of VAT is in relations 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.
“So, if you visit Amazon, we are expecting Amazon to add VAT charge to whatever transaction you are paying for. I am using Amazon as an example. We are going to be working with Amazon to be registered as a tax agent for the FIRS.”
Ahmed highlighted the desire of the federal government to modernise taxes for its digital economy and to improve compliance, explaining that digital non-resident companies do not need to be registered locally but would have an arrangement with the Federal Inland Revenue Services (FIRS) to collect and remit taxes in a bid to reduce the compliance burden.
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The minister also disclosed that the government has surpassed its collection target for its independent revenues, explaining that for the first time, Nigeria had collected independent revenues of N1.104 trillion as of November 2021 as against a target of N973.41 billion.
What you need to know
- According to the presentation, the bill empowers the FIRS to assess Non-Resident Firms to tax on Fair & Reasonable Turnover Tax Basis on Turnover earned from providing Digital Services to Nigerian customers.
- The bill introduced Turnover Tax on Fair & Reasonable Percentage of Profits earned from providing Digital Services to Nigerian customers.
- The budget also restricts VAT obligations mainly to Digital Non-Resident Companies (who supply individuals who cannot self-account for VAT).
- Similarly, the bill is expected to reduce compliance burden on other Non-Resident Taxpayers who are not required to register for VAT in Nigeria.
- The minister also clarified that the FIRS may appoint persons (including Non-Residents) for the purpose of tax collection.
Why this matters
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.