ECONOMY

5% VAT Tax Sounds Like Sax, but is it a Vibe?

Executive Chairman of Nigeria’s Federal Inland Revenue Service (FIRS), Mr Tunde Fowler

Federal Inland Revenue Service (FIRS) is planning on broadening Nigeria’s tax base to extend to a 5% VAT on all local online transactions. It’s not just Nigerians, anyone would take a dive at any opportunity to forfeit paying tax.

Tax is like a saxophone; it’s difficult to master and play (and not many can) but the music it produces is melodious, and can literally take you to another level – something taxes do for countries.

International Monetary Fund (IMF) continues to pressure Nigeria to increase its tax rate which it says is one of the lowest in the world.

Given the fragile economic state of Nigeria however, it’s interesting to find out if taxes spreading to online transactions will be a vibe or jibe for the economy.

Would this kill the vibe?

VAT is a consumption tax, which is by choice, so if you can find an alternative to the service you need, then you are fine. For instance, you can pay for your Uber by cash rather than the extra 5% for a card payment.

This begins to defeat the cashless policy already and it opens up a Pandora’s Box that affects the economy at large.

In an already crunched economy, the mindset would be to save every possible 5% rather than give it away.

Online businesses/transactions that might suffer

Ecommerce platforms like Jumia and Konga immediately come to mind when you think of the impending VAT on online transactions. Nigeria’s ecommerce is still relatively young, the taxes might just discourage people from shopping online.

The fight to encourage online payments and reduce cash-on-delivery payments would suffer a hit as well. It’s a hit ecommerce firms will feel hard considering investments they’ve put into online payment platforms.

Fintechs like Carbon, Piggyvest, etc. promoting utility and other forms of bill payment will have to do more to convince their audience all over again.

Other popular services such as online airtime/data purchase, Uber and Taxify would be affected too.

Leadership is first among equals. It goes with humility.~Tony ElumeluTweet
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