Finance Act: Amazon, AliExpress and other NRCs to Charge VAT and Remit to the FIRS

On Wednesday, January 5, 2021, the Minister of Finance, Budget and National Planning- Mrs. Zainab Ahmed announced that the Federal Government of Nigeria has introduced a 6 (Six) percent tax (“Tax”) on non-resident companies (NRC) providing services to Nigerian customers. Accordingly, NRC shall be required to remit 6% turnover from digital services provided to Nigerian customers to the Nigerian government. The Tax is contained in the Finance Act (the “Act”) which was signed into law by President Muhammadu Buhari on December 31, 2021, alongside the 2022 Appropriation Bill.

According to the Minister, the Act empowers the Federal Inland Revenue Service (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…….  “Let me just note that such digital services include apps, high-frequency trading, electronic data storage, online advertising and several others,” It appears one of the reasons for imposing the Tax is to ensure Nigeria would not miss out on revenue streams that can be generated from the taxation of information communication technology (ICT) and digital economy. The Minister explained thus: “The rationale for this is to modernize 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….. We have been missing out on these revenue streams.”

Using Amazon as an example, the Minister explained that NRCs need not register in Nigeria in order to comply with the payment of the Tax. All that is required is for relevant NRCs to have an arrangement with the FIRS where they collect Value Added Tax (VAT) on behalf of the FIRS and remit same to the FIRS. According to the Minister “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…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. “The core rationale for this is to modernize 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.” She added.

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