The Nigerian government revenue service – The Federal Inland Revenue Service (FIRS) may, from next year, ask banks to charge customers 5 per cent Value Added Tax (VAT) for on-line purchases when using bank cards, its Chairman, Tunde Fowler, has said.
Mr Fowler, who gave the hint in an exclusive interview with PREMIUM TIMES in his office in Abuja, also said the federal government is yet to take a decision on whether to increase VAT or not.
On-line purchases are increasingly becoming popular in Nigeria with on-line stores such as Jumia and Konga leading the pack. Many Nigerians also buy from popular Chinese on-line store, Aliexpress. Payments for such purchases are often made using bank debit and credit cards, and these could soon attract the 5 per cent tax being considered by the FIRS. Although he acknowledged Nigeria was not fully ready for the growing global digitalised economy, the FIRS Chairman said, based on existing laws, the country will adopt a solution suitable to her peculiar circumstance.
“We will address the issue of the digitalised economy very soon. There is no global solution to a digitalised economy. “Different countries have taken different solutions to address the problem. Nigeria has not taken a position yet. But we are meeting to see if we can come up with a global solution that we can all adapt to. “With the existing laws in Nigeria, we can appoint the banks as agents. First of all, all those who make payments for purchases on-line using bank cards and instruct their bankers to pay, we will tell the banks that, going forward, everyone who gives instructions for service for purchase on-line, they should deduct five per cent VAT,” he said. “We are thinking that maybe early next year, we will ,advise banks to start deducting five percent VAT for all on-line purchases done locally,” he added.
The FIRS Chairman also spoke on the lingering debate on whether to increase in the VAT rate from the current 5 per cent to either 7.5 per cent or 10 per cent. According to Mr Fowler, given a choice between increasing VAT rate and expanding the tax base, he will prefer the latter.
“Of course, the first one will be the expansion of the tax base. The tax has to be fair. That’s where we started off. That’s why we have said we have redesigned and issued new tax certificates for VAT. “We have given to all registered taxpayers. We believe we should have effectively at least 1.5 million corporate taxpayers,” he said.
He said the FIRS will prefer to address the issue of VAT rate” after it has achieved its target of bringing all eligible taxpayers under the tax net”.
Describing the VAT rate in Nigeria as the lowest in the world, apart from the United Arab Emirates (UAE) that has just introduced five per cent rate, he said VAT is a consumption tax, only payable by choice.
“What that means is, if A wants to impress B, and takes B to eat at the Transcorp Hilton, A will pay VAT for services enjoyed. This is because of the environment.
“The cost of the Coca Cola they will drink at Transcorp Hilton at N1,000 could have been bought at N100 in any supermarket without paying any VAT.
“Also, A can buy chicken, with all the ingredients in the market, cook it and eat without any VAT. But, instead of spending N5,000 for that meal, if A decides to go to the Transcorp Hilton and spend N20,000, then A must pay VAT. It is a choice A has to make,” he added.
He said the only exemption for VAT are items required by everybody, like education, medical services, which, regardless of choice, one is expected to have.