Nigerians to Pay 5% VAT on Online Purchases

• Nigerians to Pay 5% VAT on Online Purchases

Cost of buying goods online may surge next year as the Federal Inland Revenue Service (FIRS) perfects plans to start charging 5 percent Value Added Tax (VAT) on online transactions.

Mr Tunde Fowler, the Chairman, FIRS, gave the hint during an interview in his office in Abuja last week.

The Chairman said payments for online purchases using Nigerian credit cards will attract 5 percent VAT, adding that banks would be instructed to deduct the amount during each transaction.

“We will address the issue of the digitalised economy very soon. There is no global solution to a digitalised economy.

“Different countries have taken different solutions to address the problem. Nigeria has not taken a position yet. But, we are meeting to see if we can come up with a global solution that we can all adapt to.

“With the existing laws in Nigeria, we can appoint the banks as agents. First of all, all those who make payments for purchases online using bank cards and instruct their bankers to pay, we will tell the banks that, going forward, everyone who gives instructions for service for purchase online, they should deduct five per cent VAT,” the Chairman said.

“We are thinking that maybe early next year, we will advise banks to start deducting five percent VAT for all online purchases done locally,” he added.

While this would help curb foreign purchases and ease pressure on the foreign reserves, it will also increase the cost of goods as several imported products are not being produced locally.

Also, this may force Nigerian online shoppers to dump Nigerian cards for foreign prepaid debit cards like Payoneer to avoid paying the 5 percent VAT.

Payoneer and other foreign prepaid cards charge zero fees on online transactions. This could increase their Nigerian customers’ base even more and hurt Nigerian banks’ interest and fees charged on transactions, especially profit due to foreign exchange and online transactions.

Similarly, with the Central Bank pressuring Nigerian banks to increase loans to the private sector and reduce investments in the fixed income market, this new VAT  move would erase an estimated N650 billion in banks’ transactions annually and hurt most of the Nigerian e-commerce startups like DHL Africa eshop.

It should be recalled that in 2016, Paypal reported that Nigerian online shoppers spent N128 billion in 2015 and N172 billion in 2016 on Paypal alone. Therefore, if online transactions done with Nigerian cards were to be factored in, that number would be over N650 billion annually.

With goods worth N650 billion erased from the economy, consumer prices and other import-dependent sub-sector would suffer.