Nigeria proposes law to tax local online purchases

Nigeria proposes law to tax local online purchases

Online purchases in Nigeria could soon come with a tax bill in part of plans to raise more revenue to fund a record budget, Nigeria’s government is considering a 5% Value Added Tax (VAT) specifically for online purchases. Babatunde Fowler, head of Nigeria’s federal tax agency, says the government may appoint banks as agents to deduct 5% VAT on all local online purchases with a bank card. The policy could be in place by early next year, Fowler said in an interview with Premium Times, a local online newspaper.

This year alone, the governments of Zambia and Uganda approved taxes. In Zambia, the taxes were on internet calls while Uganda introduced a tax for accessing websites and social media apps.

The move comes amid speculation the agency is looking to increase current VAT rates to boost government revenue. But Fowler says the preferred choice will be expanding the country’s tax base rather than increasing existing VAT. As part of efforts to grow the tax base, Nigeria launched a tax amnesty program in 2017 encouraging tax evaders and defaulters to pay up without facing penalties. Midway through the amnesty period, the agency claimed it collected nearly $47 million from tax evaders.

The online purchase tax proposal appears at odds with Nigeria’s long-held ambitions for a cashless economy given the possible effect of disincentivizing online purchases. If launched, it also adds to a growing number of existing charges Nigerian bank card holders already face, including a card maintenance fee.

There’s another potential effect: Nigeria’s fledgling startups and businesses, possibly the biggest success story in the country in the last decade, may be caught in  the crosshairs of the policy.

“This will lead to a decline in use of cards online,” says Oluyomi Ojo, founder of Printivo, an online design and printing company. “Merchants will opt for bank transfers and customers will opt for other options. There’s no other way to look at the proposed policy than to see it as a card payment killer.,” he adds.

Crucially, the policy proposal also comes as more online businesses begin to scale back on cash payment on delivery options, nudging more customers to embrace online payments. E-commerce companies like Jumia and Konga have also invested in in-house payment solutions to ease online payments for shopping on their platforms.

Recently after 10 days of mobilisation with more than 500 000 people being affected by the social media tax, the government in Benin have decided to cancel the tax. The government passed the decree in late  August taxing its citizens for accessing the internet and social media apps reports Mail & Guardian. It taxed the use of Over The Top services like Facebook, WhatsApp and Twitter.

Mylène Flicka, an Beninese activist, working on IRAWO, a digital media platform spoke to The Daily Vox about the decree and the cancellation of the decree. She said the decree came into place on September 19, despite protests from the people. There was a 5% fee on texting and calls.

After the day of peaceful sit-ins on the International Peace Day on September 21, the president of Benin convened a meeting with the service providers and associate ministers. After the meeting, an official statement was issued calling for the cancellation of the taxes.

Flicka said, “We are very happy to have been heard but this victory is above all a proof of the strength of the social media and a proof of the power of a mobilized youth. We remain vigilant and we will never lower our guard over our freedoms again.”

If the decree had passed, Benin would have joined other African countries that have introduced fees which restrict access to digital spaces.

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