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Beginning this quarter of 2022, the Nigerian government plans to charge 6% tax on turnover on e-commerce businesses provided by non-resident companies in Nigeria. This brings the government’s tax lens over non-resident companies like Amazon and a host of other e-commerce platforms, large and small, offering web or mobile based transactions to Nigerians.
According to the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, in a breakdown of the 2022 budget this week in Abuja, services to be taxed include various apps, electronic-data storage, online advertising and such other similar digital services by foreign companies.
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Abuja is widening its tax net over non-oil revenue. “Digital-services tax is one of the measures government is introducing to help boost public revenue amid “emerging fiscal constraints and challenges” notes a report by Bloomberg Tax.
The new tax regime is covered by the 2021 Finance Act, which empowered the Federal Inland Revenue Service (FIRS) to access Company Income Tax (CIT) on the turnover of a foreign digital company involved in transmitting, emitting, or receiving signals, sounds, messages, images, or data of any kind including e-commerce, app stores, and online adverts.
“Section 30 of the Finance Act designed to amend section 10, 31 and 14 of value-added tax (VAT) is in relations to VAT obligations for non-resident digital companies and the mechanism that will be used is to restrict VAT obligations mainly to digital non-resident companies who supply individuals in Nigeria who can’t themselves self-account for VAT.
“So, if you visit Amazon, we are expecting Amazon to add VAT charge to whatever transaction you are paying for. I am using Amazon as an example. We are going to be working with Amazon to be registered as a tax agent for the FIRS,” said Ahmed during the public presentation.
She said government remains committed to modernising taxes, ensuring compliance in line with the global digital economy and best practice.
Highlights of the new tax
- Digital non-resident companies not required to be registered locally but must maintain a working arrangement with the FIRS to collect and remit taxes in order to reduce compliance burden.
- Tax regime empowers the FIRS to assess Non-Resident Firms to tax on Fair & Reasonable Turnover Tax Basis on Turnover earned from providing Digital Services to Nigerian customers.
- Tax regime introduced Turnover Tax on Fair & Reasonable Percentage of Profits earned from providing Digital Services to Nigerian customers.
- VAT obligations restricted mainly to Digital Non-Resident Companies (who supply individuals who cannot self-account for VAT).
- Tax regime is expected to reduce the compliance burden on other Non-Resident Taxpayers who are not required to register for VAT in Nigeria.
