In 2013, the Central Bank of Nigeria (CBN) published a document called the National Financial Inclusion Strategy. Page 23 of the document contains 10 products and channels for assessing the Apex Bank’s progress in bringing about financial inclusion by the year 2020; of importance to this article are Payment, Savings and Point of Sales (POS).
The CBN in this strategy document defines financial inclusion as “…. when adult Nigerians have easy access to a broad range of formal financial services that meet their needs at an affordable cost.” It was important for the CBN to ensure that individuals could make payments with ease, increase their savings, and have access to various POS to make it easier to acquire goods and services. The Apex bank has for the last 6 years promulgated policies to guide and regulate the financial industry in attaining the desired targets set within the documents and it has been largely successful at it.
How VAT increase will affect financial inclusion
Recently, the Federal Executive Council approved an increase of Value Added Tax (VAT) from 5% to 7.2%, which will be enforced by the Federal Inland Revenue Services. VAT is a consumption tax imposed on goods and services, payable to the Federal Government. It is therefore not alarming that the Federal Inland Revenue Service (FIRS) has been exploring several means of ensuring compliance with remittance of VAT, which is sometimes collected by companies but not remitted. While there have been articles on the manner the FIRS enforces compliance, such as the appointment of Commercial Banks as collection agents, I believe that the most controversial aspect thus far is the request by the FIRS for the Banks to implement VAT on both domestic and international online transactions starting from January 2020. It is evident that the implementation of online VAT will affect payment, savings, and the use of POS in the Nation.
In practical terms, when a product is bought online at N10,000 and such product is purchased via a POS or payment gate, the Bank will impose VAT on that transaction. However, what is unclear is whether the Bank will deduct such VAT directly from the sum remitted to the merchant, as it is expected that the merchant’s price already contains VAT, or if the Bank will impose it directly on a customer at the point of purchase and remit VAT to a different account. I believe that the charge will be imposed directly on the customer via POS or by the payment gateway, which means that an item which sells at N10,000 at a shop will instantly incur an additional charge of about 8.5% (1.5% as online processing fee, plus a further 7.2% for VAT) of the gross, and maybe convenience fee of NGN100 when purchased online or via a POS.
Where the merchants already have VAT included in the purchase price, and the Bank further imposes VAT on the item at the point of purchase by the customer, will that not amount to double taxation for customers? Surely, this is a genuine concern, especially as the Bank has allowed itself to become a monitoring agent for FIRS to the detriment of its customers, who in trust, have deposited their money with the bank for safekeeping. Do the Banks want to assume the difficult task of identifying which products or services already have VAT, in order to apply tax to only the untaxed goods and services; or would they rely on Merchants to add VAT?
One begins to wonder why the Banks would want to bear the cost of adjusting their digital solutions in order to implement this online VAT? I believe this was answered in Sec 31 (3) of the FIRS Act 2007, which provides that the tax will be recovered from the appointed agent in the event of default. Also, the chairman of the FIRS was quoted to have said that the Bank will be delisted from the list of FIRS collection Banks. This may just mean the death of online transactions, given that the Banks will go all out to implement VAT on online transactions; and Nigerians who are naturally reluctant to pay taxes, as it is believed that there is a lack of transparency on the use of taxes, would rather walk into a shop to buy the same item for less VAT. The FIRS is yet to come up with an efficient process for collecting VAT and withholding tax from shop owners, and an implementation of the proposed online VAT will be to the detriment of the striving online market which has grown, owing to the efforts of the Central Bank of Nigeria’s (CBN) cashless policy and the National Financial Inclusion Strategy.
The FIRS must strive to find a balance in implementing online VAT
It will be a shame to see 6 years’ worth of activities and policies from the CBN in a bid to promote financial inclusion, especially in the area of Payment, POS, and Savings, hindered just as the target year of 2020 is around the corner unless properly managed. While I agree that there needs to be an adequate method of capturing remittance of VAT, the FIRS must strive to find a balance in implementing online VAT (be it the current or new rate) in a manner that does not jeopardise the ability for Adult Nigerians to have access to financial products at an affordable rate and should only implement online VAT when it has been able to educate the public on the scope, and its impact on customers, fintech companies and the banks.
Omuli Iwere is a seasoned legal practitioner, with understanding of the corporate climates in both Nigeria and beyond. He obtained his post-graduate degree in law and policy from the prestigious Centre for Energy, Petroleum, Mineral Law and Policy at the University of Dundee in 2008 and has since then, served in various capacities with the Dundee City Council UK, Scottish Environment Protection Agency UK, the EU Network for the Implementation and Enforcement of Environmental Law, Pentagon Partners Legal Practitioner and Joots Attorneys.