Experts express fear over Online VAT collection by FIRS

It exposes Banks to tax audit risk – Andersen Tax

By JULIUS ALAGBE

The present position of the Federal Inland Revenue Service, FIRS, to levy a five percent tax on online transactions may not augur well for the growing sector and the banks as experts have criticized the policy as detrimental to the economy. They believe that companies are already facing too much tax burdens that this may further worsen the business environment.

Andersen Tax LP, an independent tax firm said that the deal may increase the incidence of double taxation on affected companies and may discouraged this future growth industry for the economy. It will also place additional monitoring and reporting burden on deposits money banks as well as exposing the operators to tax audit risks.

The Chairman of the Federal Inland Revenue Service (FIRS), Mr. Babatunde Fowler, recently disclosed that the federal tax authority would soon begin the collection of VAT on online transactions. According to the service some online transactions are technically vat-able but are not fully covered in the tax schemes in Nigeria.

In the light of this the tax authority seems to have suddenly awakened to under collection of tax revenues and is desperately seeking ways to increase government tax revenue. Earlier in the year, there were speculations following statement by Mr. Fowler that the VAT regime would be raise to improve revenue. But opposition to this ideas including Asiwaju Bola Tinubu may have forced the government to drop the idea.

But experts are worried that given the poor state of the economy increasing the tax incidence on the few pay companies and individuals will further worsen economic growth and unemployment. It would be recalled that the FIRS has a revenue target of N8 trillion in 2019 up from the N6 trillion it mustered last year.

Experts believe that FIRS’ plan to start directing banks in Nigeria to impose VAT on online transactions for purchase of goods and services is a soft landing for the previous decision to raise VAT across board but it is still counter-productive as this budding sector needs more incentive to thrive.

Meanwhile, some banks have been charging VAT on their online transactions even before the directive. Some customers said that their banks charge them N50 on transfer to other banks. Also, on the same transaction, the banks deduct N2.50 and some later raise it to N5.00 in addition to first charge.

MarketForces investigations however shows that the additional money on charges are often called commission, not necessarily VAT. It has been observed that many deposits money banks have reduced interest in money creation through lending to the private sector.

Consultants at LSintelligence Associates said that the addition is not really VAT. To the firm, VAT is statutory and must be remitted to relevant authorities.

“Banks would not have done that. It should be commission on for using their platforms to execute certain transactions”, the firm said.

Andersen Tax LP in a note explained that 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.

Meanwhile, the Chairman further stated that the FIRS would rely on multiple sources of information to widen the tax net and effectively capture all VAT-able transactions. But industry experts are of the opinion that the process to charging online transaction would present a great deal of opportunity for abuses however with attendant issues that are yet to be understood.

Andersen Tax observed that there are implications for this move. In its remark, the firm is of the view that 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.

It said; 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”, Andersen Tax LP foresees.

The firm said that 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 been 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.

In interpreting the impact, Andersen Tax LP said 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”, the firm reckoned.

It then said that 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.

Andersen Tax LP advised that taxpayers should also ensure to keep proper records and consult professionals where necessary, to ensure that they comply with the provisions of the law.