FG Consider 5% Tax on Online Purchases

The Federal Government Inland Revenue Service, FISR, is considering asking banks to charge customers five per cent VAT for purchases using bank cards,

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The Federal Government Inland Revenue Service, FISR, is considering asking banks to charge customers five per cent VAT for purchases using bank cards, Tunde Fowler, FIRS chairman has said.

Fowler who gave the hint in an exclusive interview with PREMIUM TIMES in his office in Abuja also said the FG was yet to take a decision on whether or not to increase VAT.

Online purchases are increasingly becoming popular among Nigerians with online stores such as Jumia and Konga leading the pack while many Nigerians also buy from popular Chinese online store, Alexpress.

Payment for such purchases are often made using bank debit and credit cards, which might soon attract the five per cent VAT being considered by FIRS.

Although Fowler acknowledged Nigeria is not fully ready for the giveaway global digitalized economy, the FIRS chairman said based on existing laws, the country will adopt a solution suitable to her peculiar circumstance.

“We will address the issue of the digitalized economy way soon. There is no global solution to a digitalized 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 adopt to.

“With the existing laws in Nigeria, we can appoint the banks as agents first of all. We will tell the banks that going forwards everyone who gives instructions for purchase online, they should deduct five percent VAT. We are thinking that maybe early next year, we will advise banks to start deducting five percent VAT for all online purchase done locally,” he added.

Speaking on the lingering debate on an increase in the VAT rate from the current five percent to either 7.5 or 10 percent, the FIRS boss said given a choice to increase VAT or broaden the VAT base, he will prefer the latter.

“Ofcourse, the first one will be the expansion of the tax base. The tax has to be fair. That is where we stated. That is why we have said we have redesigned and issued new tax certificates for VAT.We have given to all registered tax payers we behave we should have effectively, at least 1.5million corporate tax payers, he said.

According to him, FIRS will prefer to address the issue of VAT rate, after it has achieved its target of bringing all eligible tax payers under the tax net.

He described Nigeria’s VAT rate as lowest in the world except for the United Arab Emirates (UAE) but has just introduced five percent rates, adding that VAT is a consumption tax only payable by choice.

“What that means is if A wants to impress B and later B to eat at the Transcorp Hilton, A will pay VAT for services engaged. This is because of the environment. The cost of the Coca cola they will drink at Transcorp Hilton at N1000 could have been bought at N100 in any supermarket without paying of VAT.

Also, A can buy chicken with all the ingredients in the market, cook it and eat without any VAT. But, instead of spending N500 for that meal, if A decides to go to the Transcorp Hilton and spend N20,000, then A must pay VAT. It is a choice A has to make,” Fowler added.

He said the only exception for VAT are items required by everybody like education, medical services which, regardless of choice, one is expected to have.

Despite pressure from the International Monetary Fund, IMF to increase VAT rate in the country, he said the federal government is yet to make any official pronouncement on the issue.

“The IMF said Nigeria’s VAT rate is one of the lowest in the world. We had discussions back and forth on the benefits of the increase. My position is to first expand the tax net.

“We crossed the N1 trillion mark in VAT last year for the first time. We are equally improving this year. At the end of 2019, if we can have everybody come under the tax net sign for VAT, start rewriting VAT, let’s look at the value we can generate, then we can discuss the way we are, for government to take a decision as to whether VAT should be increased or not.”

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