The cloud business in Nigeria belongs to the federal government jurisdiction since it is operating on the web! So, all taxes on cloud companies and broad ecommerce companies, and digital companies, belong to the federal government. With that, physical address may not matter! So, if that is the case, one day and when every business goes fully online and stays in the cloud, Nigerian states will have zero VAT to collect. Really?
So, Rivers state, Lagos state, and all the state-VATing crusaders (including me), you need to ask yourself now: who controls transactions which take place in the cloud? If all transactions for Interswitch, Flutterwave, etc take place in the cloud, Lagos state despite being their local physical Nigeria domain may not have the rights to collect the VATs associated with transactions therein. Lawyers, correct?
John Mc Keown has pushed this postulation in a piece in Tekedia and it is super-intriguing considering the new playbook the federal government is pushing on ecomemrce: “The Federal Government has said that it is targeting an increase in e-commerce trading, from the current market value of $13bn to about $75bn by 2025. The Permanent Secretary, Ministry of Industry, Trade and Investment, Dr Evelyn Ngige, who disclosed this on Tuesday in Abuja at the second National E-commerce Roundtable organised by the ministry noted that e-commerce had grown from 14 percent in 2019 to 17 percent in 2020.”
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Conceivably, since E-Commerce transactions actually take place in ‘The Cloud’, it can be an interpretation by FGN that such transactions do not enjoy the jurisdiction of any specific state within the Federation.
This is irrespective of where any e-Commerce business chooses to site its physical activities, such as its administrative HQ, its distribution management or its warehousing (as applicable).
People, more fights ahead on VAT as more firms move online.
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Comment #1: Fortunately for those states canvassing for VAT, we can’t drink beer in the cloud and so many other things.
My Response: Do not count on that. If you begin to pay for beer via payment apps, all transactions will happen in the cloud even if consumption takes place physically. When the waiter brings his bill and you open that wallet to bring the debit card, that transaction is hitting NIBBS in Lagos and magically your beer seller is selling in NIBBS cloud headquarters and not there in front of you! So, the physicality of the consumption may not matter.
Comment #2: This is obviously calls for new regulations in e-commerce that will cover some aspect of cloud companies. I think Changing banking policies will not solve the problem but approaching the change constitutionally will be better.
My Response: Yes, they may need to look at this as they begin to review the constitution. It is a big issue as all payments in Nigeria can be assumed to be taking place in NIBBS cloud!
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The key in our understanding is to see VAT as a “Consumption Tax”. Location of the consumer, not how they’re paying is a settled matter. Remember, when buying things from abroad, we do not pay VAT and this implies physicality not how we conduct the transaction is what determines eligibility for the tax. We should keep our eyes on the ball.
“The key in our understanding is to see VAT as a “Consumption Tax”. Location of the consumer, not how they’re paying is a settled matter.” – Very encouraging words there.