Experts have raised concerns on the move by the Federal Inland Revenue Service (FIRS) to charge 5 percent Value Added Tax (VAT) on local and foreign online transactions (e-commerce) from January 2020, on grounds that it could stagnate the growing online market.
FIRS recently announced government would begin to impose VAT on all online transactions, both domestic and international, from January 2020 as it explores potentials to generate more revenue for the country and fund the budget.
The commencement date of the VAT on online transactions would, however, be subject to government approval, according to FIRS chairman, Babatunde Fowler.
The proposed 5 percent VAT, which however came as revenue pressures on government revenue escalates, targets digital goods and services as the online market seems to attract more participants as a means of facilitating the day-to-day running of businesses and households.
This move, which may appear rather favourable to the government as it aims to improve the government’s revenue base, has been criticised by experts as well as players in the e-commerce who now see a huge threat to the growth of that still fragile market in Nigeria.
Johnson Chukwu, CEO, Cowry Asset Management Company, said though there is pressure on government to expand its revenue sources, thee-commerce market in Nigeria is not yet strong enough to absorb the possible shocks that the proposed tax might bring to the market.
“I believe the tax authority should allow the online market to mature, we should take example from what Dubai did. For several years Dubai refused to charge VAT on online goods, it gave them the opportunity to attract the entire world and today they have imposed tax and they are getting much money from it,” he told BusinessDay on phone.
Chukwu stressed that imposing VAT on online transactions would further discourage the nation’s desire to migrate to a cashless society.
According to Chukwu, “It is too early for us to begin to tax online transactions; let us focus on ensuring a cashless means of transacting business first before introducing tax so that we do not discourage the process.
“The culture change required to move Nigeria from a cash payment system to electronic payment is still in process; imposing taxes will stagnate its growth and discourage those that are buying goods online and that way we will be forced to go back to the cash system that we are running from.”
BusinessDay findings show that the current eCommerce spending in Nigeria is estimated at $12 billion, and is projected to reach $75 billion per annum by 2025, as the demand for electronic transaction continues to attract payment facilitators from Europe and Asia who are investing in Nigerian electronic infrastructure projects.
Jumia, which is among the top e-commerce players, has dominated the e-commerce platform over the years, and since inception in Lagos in 2012, now operates in 14 African countries with reported revenue of $149.6 million in 2018.
Auwal Musa Rafsanjani, executive director, Civil Society Legislative Advocacy Centre (CISLAC), speaking with BusinessDay, said government should promote policies that are beneficial to business activities as well as the overall Nigeria economy.
“It is important for the government to come up with policies that will improve the economy and benefit the members of the public. Imposing VAT on online transaction may hamper the growth of online market which may further increase poverty in the land,” he said.
Rafsanjani, however, admitted that government’s plan in this regard was good, but advised it should first allow full acceptance into the Nigerian market before introducing tax, which he said may render the market unsustainable at the long run.
“There is need for government to engage more with stakeholders before coming up with policies; there should be engagement with players in the online platform to know how this may affect or make better their activities so no one is hurt at the end.”
Nicole Osakwe, an online business operator, said imposing tax on online transactions might discourage small business owners who strive to operate on the online platform.
He said most of them could not still afford the physical shops to trade their products, a situation that had pushed many of them to embrace e-commerce.
“Most the online business operators only take advantage of the platform due to the high cost of getting shops, so introducing VAT at this stage may tighten up the market space, because if we are paying VAT it will definitely affect the prices we charge on our goods,” he said.
“I would suggest the online market be given more time to increase its base and develop a stronger market in Nigeria before imposing VAT, else many people will be forced out of operation and which will further increase the rate of jobless and unemployed citizens,” she said.
