Taxes on online banking transactions

The Federal Inland Revenue Service (FIRS) would soon start collecting taxes on all online transactions in line with the Company’s Income Tax Significant Economic Presence (SEP) order that requires Over-the-Top (OTT) services providers to declare the revenue they generate from Nigerian consumers and pay taxes to the Federal Inland Revenue Service (FIRS). The order, issued […]

The Federal Inland Revenue Service (FIRS) would soon start collecting taxes on all online transactions in line with the Company’s Income Tax Significant Economic Presence (SEP) order that requires Over-the-Top (OTT) services providers to declare the revenue they generate from Nigerian consumers and pay taxes to the Federal Inland Revenue Service (FIRS).

The order, issued by Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, imposes tax on a foreign entity with respect to certain services or digital transactions if it has a Significant Economic Presence in Nigeria.

The order mandates the Minister to determine what constitutes SEP in Nigeria.

Under the new rule, e-commerce companies like Alibaba and Amazon that generate revenue from Nigeria by processing and transmitting data collected about users in Nigeria, provision of goods or services directly or through a digital platform or offer intermediate services that link suppliers and customers in Nigeria, are to be taxed.

In addition, FIRS is working out plans for Nigerians to pay stamp duties on POS receipts, fiscalised device receipts, Automated Teller Machine (ATM) print-outs. All electronic dutiable instruments or receipts, including e-mails, short message service (SMS), instant messages (IM), any internet-based messaging service, are subject to stamp duty.

Early in February, Vice President Yemi Osinbajo had explained that “most digital and multinational technology companies do not have a physical presence in Nigeria, yet make significant income in Nigeria from online activities.

“They pay no tax to Nigeria because they do not have a physical presence in Nigeria, now we are no longer relying on physical presence. Under the new Act, once you have a significant economic presence in Nigeria, you are liable to tax whether you are resident here or not.”

Under the new order, Nigerian Communications Commission (NCC), which hitherto has insisted on technology neutrality of the OTTs, may be forced to facilitate the revenue generating process with the right technological devices to ensure transparency.

For the FIRS and the federal government, taxation will definitely serve as a means to curb the excesses of the OTTs while also boosting the nation’s tax base.

For the Association of Telecommunications Operators of Nigeria (ALTON), the umbrella body of telecom operators in the country, it is not right that a company providing traditional telecommunications services has to meet certain regulatory requirements, like those concerning data protection and taxes while a company providing comparable services over the web does not.

Gbenga Adebayo, chairperson, ALTON, recently said: “We are beginning to see the need for regulators to look at regulating technology instead of services. These over-the-top services have social, economic and security implications. If they are not licensed, it means they are not regulated, and in that case, there is no limit to the scope of what they can do. There is also no control over services and content they may provide.”

However, Nigerians are worried about the multiplicity of taxes especially on bank withdrawals and other electronic transactions. It risks driving people back to hoarding money at home.

According to the Central Bank of Nigeria (CBN), less than 20 million citizens operate bank accounts, meaning that more than 150 million eligible Nigerians do not.

With over 100 million mobile phones available to serve customers in the country, the new flood of taxes is surely a great disincentive to banking and online transactions, therefore, should be dropped.