FIRS set to impose 5% VAT on online card transactions from next year.

In a recent interview with the online news portal, PremiumTimes, the FIRS boss, Babatunde Fowler says, the agency will soon impose a 5% VAT on every online card transaction.

The move is seen by many as an effort by the federal government to shore up its dwindling revenue.

And to tap into the growing digital economy. Until now, the tech sector hasn’t really been captured into the nation’s tax base.

With this move, the FG hopes to get its bite of the estimated $12 billion online spendings by Nigerians.

What does this mean for consumers?

Nigerians will have to pay an additional 5% tax on every 10K naira worth of transaction they conduct online.

For example, if a consumer goes to say, Jumia, Africa’s largest e-commerce site and pays up to NGN10,000 for a product, an extra NGN500 would be deducted taking the total amount to NGN10,500.

So, consumers should expect to pay more in taxes in addition to the other myriads of charges they are already burdened with.

Impact of the new 5% VAT on Government’s Cashless policy

Many commentators, including serving lawmakers, see this move as reckless, ill-thought-out and that it is bound to push consumers away from using their cards for online transactions.

The new tax policy if implemented will destroy any gains made so far in moving Nigerians towards a cashless society.

Over the years, efforts have been made to build trust in the online space. Tech companies – especially e-commerce sites, have tried to gradually shift public perception about online payments.

But, it seems the FG is about to undo all those years of hard work with this latest move.

How does FIRS intend to impose 5% VAT on online card transactions?

Speaking to the News Agency of Nigeria on Saturday, Mr. Fowler, said:

“Soon we’ll ask banks to impose VAT on online transactions for the purchase of goods and services,” he said.

According to the chairman of the tax agency, the imposition of value-added tax is nothing new. “It is something that should be in existence,” he further explained.

“We’ll certainly follow up to make sure every VAT that is due to collected is collected.”

The FIRS has in 2017, launched a Federal government-backed amnesty program to tax defaulters. The goal was to incentivize serial tax-defaulters to voluntarily register and pay up, on their taxes without getting prosecuted.

Midway into the program, the FIRS Chairman released a statement that they have been able to generate between NGN 750 billion to NGN 1 trillion.

Impact of new 5% VAT on tech startups

When implemented, many people fear the tech sector will be severely hit. Akin Alabi, CEO of Naijabet, and lawmaker, was quick to denounce the new move:

The tech industry is one of the few bright lights in Nigeria in the last 10 years or so. Our government (states and federal) must come up with policies and actions that will aid and support them to grow, not just taxing them. It’s not hard to help them.

Akin Alabi, reacting to the news of the proposed imposition of 5% VAT on online purchases from next year.

Another Twitter user with the handle @Pastor_CVB, listed out some of the charges and fees Nigerian consumers are currently battling:

5% VAT + N52 Bank for transaction fee + 15% Remita/TSA + N50 Card maintenance Fee + N1,000 one-off charge for issuance of debit cards. If you lose the card and want it replaced it will also cost N1000 one-off

One thing is clear as Nigeria moves to tax online purchases, startup tech will resist the move. However, the govt. in a bid to ramp up its revenue, expand its tax base will go ahead with the policy.

Only time will tell whether the Nigerian consumer will jettison card payments due to the heavy tax burden or adapt and continue as if nothing happened.