•Starts implementation January 2020
James Emejo in Abuja
The Federal Inland Revenue Service (FIRS) may generate as much as N1.3 trillion in a quarter from Value Added Tax (VAT) on all online transactions, based on the projection of the levy being kept at the present five per cent base.
Executive Chairman of FIRS, Mr. Tunde Fowler, said yesterday at the African Tax Administration Forum (ATAF) Technical Workshop on VAT in Abuja that the agency would begin to impose VAT on local and international online transactions, with effect from January 2020.
Figures obtained from the Nigerian Interbank Settlement System (NIBSS), the total value of online transactions in the country between January and March 2019, was N27.649 trillion. A breakdown of this showed that transactions on NIBSS Settlement Series stood at N1.2 trillion within the period; e-payment operations – N24.2 trillion; Point of Sales – N633.8 billion; ATMs – N1.5 trillion; Mobile Money – N810.1 billion and Web-payment – N107.6 billion.
Therefore, should FIRS decide to fully implement this policy across all the payment channels, it would rake in N1.382 trillion in three months, being five per cent, the present VAT in the country, of the total amount within the period, as VAT.
Although Fowler did not give details of how much the agency was targeting, FIRS has been striving to boost revenue generation for the federation in the face of dwindling oil revenue, the major source of foreign exchange earning for Nigeria, and it is hoping to diversify the nation’s revenue base from this income stream.
FIRS officials contacted by THISDAY said since the modalities were being worked out, including what percentage of VAT to charge and whether the levy would be across all online platforms or not, it would be premature to discuss any projected earning for now.
However, at the ATAF workshop yesterday, Fowler spoke on the potential of VAT as a major income stream, saying that there is the need for Nigeria to fully exploit the possibilities to generate more revenue.
He said: “We have thrown it out to Nigerians. Effective from January 2020, we will ask banks to charge VAT on online transactions, both domestic and international.
“VAT remains the cash cow in most African countries, with an average VAT-to-total tax revenue rate of 31 per cent. This is higher than the Organisation for Economic Cooperation and Development’s average of 20 per cent.
“This statistics, therefore, is a validation of the need for us to streamline the administration of this tax with the full knowledge of its potential contributions to national budgets.
“It is, however, also bearing in mind the rights of our taxpayers.”
According to him, in Nigeria, for example, VAT is critical to the development of projects at all levels of government.
“VAT revenue is shared 15 per cent to the federal government, 50 per cent to state governments and 35 per cent to local governments.
“FIRS wrote to all commercial banks in May 2018, requesting for a list of companies, partnerships and enterprises with a banking turnover of N1 billion and above.
“This activity is aimed at ascertaining those companies that are compliant with the tax laws and those that are not,” he added.
Fowler, who is also the chairman of ATAF, said the African tax outlook gave some starting points on the questions to ask regarding some aspects of VAT.
He said: “Why does VAT contribute 51 per cent to total tax revenue in Senegal but only 17 per cent in Nigeria? Why is the ratio on VAT refunds at 49 per cent in Zambia but only one per cent in The Gambia?”
He added that African countries would need to “closely look at the taxation of digital goods and services” to boost revenue generation as consumers increasingly patronise online trading activities.
He said as civilisation gravitated towards digital platforms as a means of facilitating the day-to-day running of businesses and households, it had also become imperative to tax administrators to understand how this would affect VAT as a tax and how best to mitigate any challenges.
He stated that increased digitalisation and the focus on reviewing related tax standards would enhance increased transparency between multinationals and the tax authorities.
He said the VAT systems, if streamlined, should have a ripple effect in attaining useful data to guide effective tax audits in other areas.
The FIRS boss described VAT as a high revenue-yielding tax on the continent, adding that despite challenges, stakeholders must explore effectively means to administer the tax, especially in ways that are equitable to the taxpayer.
The Executive Secretary of ATAF, Mr. Logan Wort, also said the ATAF VAT Technical Committee was also monitoring developments in the construction sector and had already commenced work on guidance on VAT issues arising from the sector as governments in the continent sought to commit over $1 trillion for investment towards infrastructure development over the next 10 years.
He said: “The 2018 edition of Deloitte’s Africa Construction Trends report indicated that as of June 2018, Africa had 482 projects, each valued at $50 million or above. In total these construction projects were valued at $471 billion.
“This was an increase of 53 per cent of the total value of $307 billion recorded in 2017. In 2018, the top three countries in terms of construction projects were Egypt, South Africa and Nigeria. Egypt had the highest recorded number of projects, totalling 46 and accounting for 9.5 per cent of African projects. In terms of value, Egypt also topped Africa, recording projects worth $79.2 billion. This accounted for 17 per cent of the continent’s value of projects.”
He also justified the need to shift focus to the digital economy to boost revenue drive amidst the present fiscal constraints being faced by individual countries.
“While construction is that of tangibility, the rise on the intangibles is common across the globe and indeed in Africa. Beset against the fourth industrial revolution, more and more, we realise that the “old way” of going to a shop to buy a product may not be the most effective way when the same product is available online, and at times, cheaper.
“E-commerce changes the distribution of taxable activities; it poses challenges to the jurisdiction to tax income and alters the balance of taxing authority, and results in the erosion of countries’ tax bases.
“E-commerce creates difficulties in the identification and location of taxpayers, the identification and verification of taxable transactions and the ability to establish a link between taxpayers and their taxable transactions, thus creating opportunities for tax avoidance,” he said.