The federal government has mandated companies not registered or incorporated in Nigeria but makes profits or income from Nigeria, otherwise known as non-resident companies (NRC) to remit 6 per cent of their turnover from digital services provided to Nigerian customers to it.
The NRCs include Amazon, AliExpress, Twitter, Zoom Inc. and others.
This was made known by the minister of finance, budget and national planning, Zainab Ahmed, at the public presentation of the 2022 approved budget held in Abuja.
She said that the new tax is contained in the Finance Act signed into law by President Muhammadu Buhari on December 31, 2021.
The Finance Act, among others, empowers the Federal Inland Revenue Service (FIRS) to assess and charge on the turnover of the digital companies transmitting or operating in the country.
Ahmed said section 4 of the Act makes provisions for the taxation of e-commerce businesses by non-resident companies on a fair and reasonable turnover basis, set at 6 per cent of turnover.
“This provision empowers FIRS to access non-resident firms to tax on Fair and Reasonable Turnover Tax Basis on turnover earned from digital services provided to Nigerian customers,” she said.
The minister explained that digital services include those provided through apps, trading platforms and online ads among others.
“Let me just note that such digital services include apps, high-frequency trading, electronic data storage, online advertising and several others.
“The rationale for this is to modernise the taxation of ICT and digital economy in line with current realities, and this is in conformity with the provisions of the national development plan of 2021,” she added.
She further explained that digital NRCs are obliged, in the Finance Act, to collect VAT from their Nigerian customers and remit to the FIRS.
“At section 30 of the Finance Act, designed to amend section 10 of VAT as well as section 31 and 14 of VAT, is in relation to VAT obligations of digital non-resident companies,” Ahmed said.
“The mechanism that will be used is to restrict VAT obligations mainly to digital non-resident companies who supply individuals in Nigeria, who cannot themselves self-account for VAT.
“If you visit Amazon, we are expecting Amazon to add a VAT charge to whatever transaction you are paying.
“I am using Amazon as an example. We are going to be working with Amazon to agree to be registered as a tax agent for the FIRS. So Amazon will now collect this payment and remit to FIRS, and this is in line with global best practice.
“We have been missing out on these revenue streams,” the minister added.
She said the Finance Act also considers reducing tax compliance orders on non-resident taxpayers who are not required to register for VAT in Nigeria.
The minister further said: “So they don’t really have to come and be registered companies in Nigeria. All they need is that arrangement with FIRS where they collect VAT on behalf of FIRS and remit to FIRS.
“And also, to clarify, that FIRS may appoint persons including non-resident companies for the purpose of VAT collection and to clarify again that appointed persons may collect and remit taxes to FIRS, pursuant to the relevant tax laws.
“The core rationale for this is to modernise the taxation of ICT and digital economy in line with the National Development Plan 2021-2025, to enhance administrative modalities for the taxation of non-resident taxpayers and also to reduce incompliance by non-resident payers to reduce the compliance burden.”
