Great comments on VAT (value added tax) collection in the Nigerian ecommerce. The comments on Tekedia and LinkedIn positing that government should neither require ecommerce firms to collect VAT nor use banks to extract the VAT are well noted.
We agree on one thing: the offline markets (open market sellers, neighborhood stores, traffic boys, etc) will benefit if ecommerce VAT collection takes off at scale since VAT will make products sold online to become artificially more expensive when compared to offline channel, by 5%.
Yet, VAT collection is the LAW of the land. Unless that law is changed, FIRS (Federal Inland Revenue Service), the tax agency, has to use any legal mechanism to collect it. That it is easier to get it from ecommerce firms compared with (offline) open markets across Nigeria does not make the strategy wrong.
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If the government does not want to collect VAT on ecommerce, the National Assembly should update the rule book. This should not be debatable. Anyone saying we should leave ecommerce firms from VAT obligation is saying Nigeria should abstain from enforcing its laws even when it has a low-hanging fruit at hand.
America changed the rule book to waive the burden of sales tax collection for ecommerce firms like Amazon. Nigeria has not done so, and that means you should not expect the tax agency to do otherwise. That is my point – if FIRS cannot collect VAT it can easily collect, it simply means it is failing Nigeria on executing its mandate.
This expected strategy of possibly using banks to collect 5% VAT is not a problem FIRS has created. If you do not like it, tell your House of Representative or Senator to waive VAT on online sales. FIRS is simply doing its work in a domain it can easily do so. It has no legal basis to say “because we want the online commerce to grow, FIRS will not go after the ecommerce companies”. That is not a call of FIRS to make: the National Assembly has such as part of its job requirements.
Ecommerce Sector to Shrink As Nigeria Begins Collecting 5% Online VAT Next Year
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Many of our laws are not in consonance with our aspirations, and it’s one of the main reasons why Nigeria has remained a nation of contradictions; we really need to organise a lot of things in the land.
The same problem we face with FDI, where heavy taxation and employment opportunities are almost mutually exclusive, especially for a developing country; but in our legendary entropic way of doing things, we always want to gain on both sides. Our disappointment is constant, because we never care to understand why things don’t work here, until we learn to pay attention to what is really important.
Ordinarily, if you want to grow a sector, you are meant to give a lot of things away, in order to make it attractive. The ecommerce sector hasn’t even achieved a breakeven point, but we care so much about our VAT! What we usually hear is where the FIRS has been mandated to achieve tax compliance level of certain amount, and what would the latter do? The easier option is to look for entities readily available and tax them more; we are not going to go anywhere with this crude mentality.
When we are ready to grow the economy and provide jobs for the citizens, we know what to do, for now we are still joking.
I just think that FIRS is doing its work. Anyone that has an issue should make a case with the National Assembly and not FIRS