On 18 May 2019, the Chairman of the Federal Inland Revenue Service (FIRS), Mr. Babatunde Fowler, disclosed that the FIRS would soon begin the collection of Value Added Tax (VAT) on online transactions. 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.

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.

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.


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.

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. 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.

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.

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.

Taxpayers should also ensure to keep proper records and consult professionals where necessary, to ensure that they comply with the provisions of the law.

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