Earlier this year, the Federal government of Nigeria instructed e-commerce websites, and other companies such as Amazon, Facebook ads, Twitter, Zoom Inc. AliExpress, and many others to pay 6% tax on profits made from Nigerian customers.
This is coming after the Minister of Finance, budget, and national planning, Zainab Ahmed confirmed that the new tax is stated in the Finance Act signed into law by President Muhammadu Buhari on December 31, 2021.
Zainab also said that section 4 of the Act made provisions for the taxation of e-commerce businesses by non-resident companies on a fair and reasonable turnover basis, set at 6% of turnover. While this will bring more profits to the government, the customers will face the other side.
The Minister of Finance, budget, and national planning, Ahmed also added that digital services include those provided through apps, trading platforms, online ads etc. The digital NRCs are obliged, in the Finance Act, to collect VAT from their Nigerian customers and remit to the FIRS.
“Let me just note that such digital services include apps, high-frequency trading, electronic data storage, online advertising and several others,” “The rationale for this is to modernise the taxation of ICT and digital economy in line with current realities, and this is in conformity with the provisions of the national development plan of 2021.”
“At section 30 of the Finance Act, designed to amend section 10 of VAT as well as section 31 and 14 of VAT, is in relation to VAT obligations of digital non-resident companies,” she said.
“The mechanism that will be used is to restrict VAT obligations mainly to digital non-resident companies who supply individuals in Nigeria, who cannot themselves self-account for VAT.
“If you visit Amazon, we are expecting Amazon to add a VAT charge to whatever transaction you are paying. I am using Amazon as an example. We are going to be working with Amazon to agree to be registered as a tax agent for the FIRS.Advertisement
“So Amazon will now collect this payment and remit to FIRS, and this is in line with global best practice. We have been missing out on these revenue streams.”Advertisement
She said the Finance Act also considers reducing tax compliance orders on non-resident taxpayers who are not required to register for VAT in Nigeria. So they don’t really have to come and be registered companies in Nigeria.Advertisement
“All they need is that arrangement with FIRS where they collect VAT on behalf of FIRS and remit to FIRS. And also, to clarify, that FIRS may appoint persons including non-resident companies for the purpose of VAT collection and to clarify again that appointed persons may collect and remit taxes to FIRS, pursuant to the relevant tax laws.
“The core rationale for this is to modernise the taxation of ICT and digital economy in line with the National Development Plan 2021-2025, to enhance administrative modalities for the taxation of non-resident taxpayers and also to reduce incompliance by non-resident payers to reduce the compliance burden.”