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In the wake of the Federal Inland Revenue Service (FIRS) propose imposition of 5% value added tax (VAT) on online transactions, Andersen Tax LP, an independent tax firm has said that the deal may increase the incidence of double taxation, place additional monitoring and reporting burden on deposits money banks as well as exposing banks to tax audit risks.

The Chairman of the Federal Inland Revenue Service (FIRS), Babatunde Fowler, recently disclosed that the federal tax authority  would soon begin the collection of VAT on online transactions. It has been observed that there are online transactions that are technically vatable but are not fully coverred in the tax schemes in Nigeria.

In the light of the above, the tax authority seems to be awakened to under collection of tax revenues as it directed that it woud begin to charge sales tax on online deals. According to the Chairman, the FIRS plans to start directing banks in Nigeria to impose VAT on online transactions for purchase of goods and services.

Meawhile, some banks have been charging VAT on their online transactions even before the instruction. Some customers said that their banks charge them N50 on transfer to other banks. Also, on the same transaction, the banks deduct N2.50 and some later raise it to N5.00 in addition to first charge.

MarketForces investigations however shows that the additional money on charges are often called commission,not necessairly VAT. It has been observed that many deposits money banks have reduced interest in money creation through lending to the private sector.

Consultants at LSintelligence Associates said that the addition is not really VAT. To the firm, VAT is statutory and must be remitted to relevant authorities. “Banks would not have done that. It should be commission on for using their platforms to execute certain transactions”, the firm said.

Andersen Tax LP in a note explains that VAT is a consumption tax imposed at 5% on the cost of goods and services supplied in Nigeria except items specifically exempted or zero-rated under the VAT Act. The Chairman has stated that the move by the FIRS to extend VAT collections to online transactions is part of the agency’s measures to meet its 2019 revenue target of N8 trillion.

Meanwhile, the Chairman further stated that the FIRS would rely on multiple sources of information to widen the tax net and effectively capture all VATable transactions. But industry experts are of the opinion that the process to charging online transaction would present a great deal of opportunity, however with antendant issues that are yet to be understood.

Implication

There are imlication for this move. In its remark, Andersen Tax LP is of the view that the Chairman’s disclosure implies that the FIRS would intensify its efforts in capturing e-commerce in the VAT net in order to boost revenue generation.

It said; although a number of businesses are already compliant with respect to VAT remittances on e-commerce transactions, there are myriads of VATable transactions conducted daily without any VAT remittance. Thus, capturing online transactions for VAT purposes should help in widening the tax net and generating additional revenue for the government.

“However, directing the banks to impose VAT on online transactions could result in a number of unintended effects as it appears to impose additional obligations of monitoring and tracking various e-commerce transactions on banks”, Andersen Tax LP foresee.

The firm said that this could also expose the banks to tax audit risks, as the FIRS would seek to ensure compliance and proper remitting of the VAT imposed. More so, collection of VAT on such transactions by banks could amount to double taxation where the supplier of the good/service has already charged and remitted VAT on same transactions given that the VAT Act imposes the obligation to charge and remit VAT on the supplier of VATable goods/services.

In interpreting the impact, Andersen Tax LP said another critical issue is how the banks are expected to determine VATable transactions and the mode of calculating and imposing VAT on the goods and services supplied online.

“The law allows a supplier of goods and services to make the necessary adjustments between the output VAT and input VAT before computing the VAT on the product supplied. As such, it would be absurd to mandate banks to make arbitrary deductions on the basis of output VAT”, the firm reckoned.

It then said that while it is desirable for the FIRS to expand the tax base in order to capture defaulting taxpayers, it is also necessary for the FIRS to keep proper records of online transactions and exercise reasonable caution in the VAT collection process to avoid imposing double tax on already compliant taxpayers.

Andersen Tax LP advises that taxpayers should also ensure to keep proper records and consult professionals where necessary, to ensure that they comply with the provisions of the law.