The 2021 Finance Act has made some changes to the taxation of the digital economy. This includes limiting VAT obligations to Digital Non-Resident Companies, which supply individuals who are unable or unwilling to self-account.
The introduction by non-resident businesses of a 6% tax on digital services to Nigerians means that Nigerians visiting Amazon and other ecommerce platforms will be charged VAT for items they purchase online.
It will not only increase government revenue but it will also impact the transfer of cost to customers. Taiwo Oyedele is a Fiscal Policy Partner at PwC and Africa Tax Leader at PwC. He spoke at the Nigerian Economic Outlook 2022, organized by King’s Court Parish of Redeemed Christian Church of God (RCCG), during a webinar titled “The Financing Act for 2022 – Nigeria Fiscal Guide.”
What Mr Oyedele has to say
The 2021 Finance Act has been amended to allow FIRS to assess non-resident firms to tax on fair and reasonable turnover tax basis on the turnover earned by providing digital services for Nigerian customers.
Oyedele said that the Finance Act 2021 has given the FIRS the power to tax NRCs with significant economic presence in Nigeria.
This means that non-resident digital businesses are now required by FIRS to collect, remit and charge VAT.
Oyedele predicts that this will have a number of implications. These include increased revenue generation for government, difficulties with compliance enforcement and the possibility of customers passing on the cost through higher prices.
What You Need to Know
Remember Nairametrics reporting that the federal government had revealed that it would charge 6% tax on all e-commerce transactions made by non-resident Nigerian companies.
Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmad, said during the public presentation and breakdown the 2022 budget that Section 30 of Finance Act was intended to amend sections 10, 31 and 14. VAT. The mechanism to limit VAT obligations to non-resident digital businesses who supply individuals in Nigeria, who are unable to self-account, is to use the mechanism to restrict the VAT obligations to digital nonresident companies.
In Nigeria, the introduction of the 6% digital service tax by non-resident businesses to Nigerians means that Nigerians visiting Amazon and other ecommerce platforms, will be charged VAT for items they purchase online. This will drive growth in Nigeria’s other than oil revenue.