ICT Clinic (Punch Newspaper)

Proposed online tax will hinder e-commerce growth [ICT Clinic]

The immense opportunities, that the online space has given entrepreneurs, especially, small business owners, cannot be overemphasised. I am thrilled about the progress we have made but I am super aware that there is a lot more we can achieve going forward.

Reports from McKinsey, indicates that, currently, the spending, on e-Commerce in the country, is estimated at $12bn and with a projection, to reach $75bn in revenues per annum, by 2025. A staggering figure, one might say, however, over the past few weeks in Nigeria, there appears to be an atmosphere of tension, caused by a proposed Federal Government five per cent Value Added Tax, on purchase made online!

According to the News Agency of Nigeria, Babatunde Fowler, Chairman, Federal Inland Revenue Service, hinted that the government’s proposal was to find another alternative in funding the budget. The move would see the government likely to appoint agencies from banks, to effect the five per cent VAT deduction on all online purchases made locally with a bank card.

There have been concerns over this development, as this will likely cause a setback for the already growing digital space; a move that could discourage online transactions. Amid fluctuating oil prices, the continual loss of the crude oil to pipeline vandalism and oil bunkering, as well as the rise in the country’s debt profile, the Federal Government is looking to raise its tax revenue from other sources.

Fundamental for me is that fact that an imposition of tax on online purchases, ought to come with the provision of infrastructure that would ease the burden of the platform owners as well as the consumers. Yes, some countries have imposed online sales tax on e-commerce services. Let us consider a number of them and see how structures are comparable.

In the United States, during the late 90s, the Federal Government stopped online sales taxes for up to three years. The US government, over the years, have tried to shy away from enforcing a Federal tax on transactions effected online. That is why, up to 24 states in the US have taken it up to impose a tax on online transactions after the US Supreme Court ruled in 2018 that taxation on online transactions is a development that the State ought to deal with.

These states obtain online tax only from retailers whose annual sales exceed $100,000, or, having more than 200 sales transactions. These annual sales include both the B2B and B2C transaction.

In South Africa, the Federal tax law compels foreign retailers, to pay a 14 per cent VAT. Any foreign e-commerce site providing electronic service or, gets paid through local banks and gets revenue amounting to more than R50,000 must register with the South Africa Revenue Service. South Africa, however, charges the same 14 per cent VAT on both B2C and B2B sales.

The price elasticity of demand for online products is high and this implies that consumers are very sensitive to price changes and this would adversely affect their demand, irrespective of how small the change is.

The implication of this is that the producer of the goods will be saddled with a tax burden. The producers, in this case, would internalise the cost of the sales tax by charging their digital customers the same price but making the payment from their profits.

Nigeria’s cashless policy was once the rave of the moment. The once vibrant campaign on the cashless economy encourages online transactions but with the impending imposition of an online tax, the age-long dream of a cashless economy might just be a mirage. A number of existing — Finish Reading on the Punch

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