Fact Check: There is no new tax for online transactions in Nigeria

by | Aug 20, 2019

According to a report published earlier this month by Premium Times, Nigeria’s Federal Inland Revenue Service (FIRS) plans to begin enforcing a new 5% VAT on online purchases of goods and services, starting “maybe” early next year. Investigations reveal that this is not entirely true.

The report gained a lot of coverage, especially on social media, with many Nigerians interpreting it to mean that the FIRS wants to impose a new tax on Nigerians.

They also raised concerns about its implications on the Central Bank of Nigeria (CBN)’s move to make Nigeria a cashless society, the issue of tax compliance, and good governance.


Since online payments in Nigeria are often made through the use of debit and credit cards, the FIRS Chairman Tunde Fowler reportedly told Premium Times that it plans to appoint banks as agents to ensure that all VAT from online purchases are remitted.


According to Adedayo Alawode, a Lagos-based tax consultant, this is only a strategy by the tax authority to bring more people into the tax net.

“Many people, especially those who run online businesses, have been evading tax, mostly VAT. What FIRS is trying to do is to ensure that these people remit their VAT,” he explained during a recent interview with Techpoint.

This will not be the first time the FIRS is enlisting the help of commercial banks to enforce tax compliance. In August 2018, the government agency began writing letters to banks appointing them as tax agents and directing them to place a lien on the accounts of tax defaulters.

In February of this year, the tax authority directed the banks to suspend the lien for a period of 30 days. A few weeks after, the FIRS issued a public notice stating that the restriction would continue with effect from March 15, 2019.

“Majority of these cases were VAT-related,” says Adedayo.

Regardless of these measures, Nigeria still has a huge tax compliance problem.

Paying taxes in Nigeria

According to the Nigerian law, VAT should be charged on the purchase of all goods and services, except in the cases of those exempted or zero-rated by legislation; this should apply to offline and online purchases.

In an ideal situation, all VAT collected by businesses from all online and offline sales should be remitted to the tax authority. But the reality in Nigeria is that many individuals and businesses do not pay their taxes, let alone VAT.

Suggested Read: Tax Compliance: Why SMEs and startups in Nigeria do not pay taxes

As of 2017, only 14 million of the 70 million economically active Nigerians were paying taxes, with only 214 people reportedly paying taxes of more than ₦20 million in the entire country, according to former finance minister Kemi Adeosun.

In 2018, the number of tax compliant Nigerians reportedly rose from 14 million to 19 million following FIRS’ intensified drive for tax collection. Still, tax only contributes to a minute percentage of the country’s GDP year in, year out.

Taxing online transactions

The enforcement of VAT on online purchases has been difficult for many governments around the world, especially for cross-border online sales.

For so long the continuous growth of online shopping and transactions all over the world has led to VAT losses in the billions. The UK government lost an estimated £1 billion to £1.5 billion from 2016 to 2017.

In order to minimise these losses, governments around the world are coming up with policies that will enable them to capture all taxable sales and purchases. And they are mostly leaning towards putting VAT liabilities on online marketplaces.

In popular online marketplaces in Nigeria, VAT liability is on individual merchants and not on the platforms themselves. A quick look at the terms and conditions of popular eCommerce platforms Jumia and Konga explicitly tells us that much.

According to a merchant who sells on both platforms, even though he charges VAT on all products, he has never been obliged to remit them to FIRS; this is exactly what the government agency is looking to curtail.

However, the question of how the banks will pull off the automatic deduction of VAT on every local online purchase still remains. Perhaps, the recently launched consolidated tax database will play a huge role in making it happen.

Titilola Oludimu
Titilola Oludimu

I’m always open to new experiences.

Are you in tech and you are looking at getting a foreign remote job or you want to move abroad? Fill this form and you will get the BEST resources to help you get that high paying remote job as well as japa easily! WAGMI!

Notify of
Inline Feedbacks
View all comments

Recent News

Kenya’s digital products for PwDs

Kenya’s digital products for PwDs

On #TechpointDigest, Victoria Fakiya (@latoria_ria) discusses what Jumia’s partnership with CGAP could mean, and Kenya’s digital products for people with disabilities.

Reclaiming stolen African artefacts

Reclaiming stolen African artefacts

On #TechpointDigest, Victoria Fakiya (@latoria_ria) discusses how Traction wants to stop fake alerts, Canza Finance’s journey, Esaal’s $1.7m seed round, and JABU’s $15m series A.

[PODCAST] Relooting African art with NFTs

[PODCAST] Relooting African art with NFTs

What do you think about an NFT project that wants to reclaim Africa’s lost artefacts? Well, the editorial team had some interesting thoughts, and you can listen to this and other stories on today’s episode of #TechpointAfricaPodcast.

$2 million to drive learning via WhatsApp 

$2 million to drive learning via WhatsApp 

On #TechpointDigest, we discuss how major players in the African mobility space can change the mobility narrative, FoondaMate’s $2 million funding, Twitter Create, and AMP’s $5.6 million seed round.

Subscribe to Techpoint Digest!

A daily 5-minute roundup of happenings in African and global tech, sent directly to your email inbox, between 5 a.m. and 7 a.m (WAT) every week day!

Please check your email to confirm your subscription.

Subscribe to Blockchain Explorer

Analysis oninnovation, regulations, and trends inthe blockchain sector, as it concerns Africa

Please check your email to confirm your subscription.

Subscribe to The Experts

A bi-weekly where tech career specialists take us on their journey from newbie to expert, and how they became successful in the industry.

Please check your email to confirm your subscription.

Subscribe to Founder's Table

A monthly series, where we catch up with founders in the startup ecosystem, learn about their failures, successes and a few tricks of the trade

Please check your email to confirm your subscription.

Copy link
Powered by Social Snap