Nigeria: The FIRS has now the authority to appoint non-resident digital service providers as VAT collectors and tax their turnovers

His Excellency, President Muhammadu Buhari, GCFR, signed the finance bill 2021 into law as the Finance Act 2021 on 31 December 2021. The Finance Act of 2021 introduces amendments to tax acts having came to  effect on January 1, 2022. Furthermore, the Act modifies several of the adjustments proposed by its predecessors (Finance Acts 2019 and 2020) to offer clarity and make them more consistent with the government’s fiscal plans and present economic conditions. 

The 2021 Finance Act also enables the Nigerian Federal Inland Revenue Service (FIRS) to publish guidelines to give effect to the requirements of Section 10 of the VAT Act regarding the form, timing, and method for submitting tax returns and payment of VAT by non-resident service providers. The digital economy is an important component of the Nigerian economy. Even in the middle of the COVID 19 outbreak, the industry has grown and made major contributions to the Nigerian economy.  

Noteworthy amendments in the Act: 

A. Value Added Tax Act (VATA): 

• Granting the Service authority to employ tax agents in Nigeria 

To comply with the VATA, non-resident businesses must charge VAT on all taxable supplies made in Nigeria.  

• Referencing error in Section 15(2) of the VATA which exempts persons with a turnover below NGN 25million from certain VAT compliance requirements 

A VAT invoice is one of these compliance obligations. Notably, the requirement to send a VAT invoice is established in Section 13A of the VATA, not Section 13 of the VATA. Section 32 of the 2021 Finance Act now references the correct section of the act. 

• Clarification that petroleum export activities are taxable 

Businesses engaged in upstream petroleum operations as defined in the Petroleum Industry Act (PIA) and the Petroleum Profits Tax Act (PPTA) that do not meet the NGN 25 million turnover threshold will continue to be required to comply with VAT obligations, including issuing VAT invoices, collecting VAT, and reporting VAT to the FIRS. 

• Impose penalties for noncompliance 

B. The authority of the FIRS to assess non-resident digital service providers to tax on their turnover

Under Section 30 CITA, the FIRS may tax a company’s turnover if “it seems to the Service that for any year of assessment, the trade or business produces either no assessable profits, or less than could be expected to arise from such trade or business, as the case may be.” This section has now been amended to include non-resident digital service providers that are subject to tax for sales to Nigeria. Thus, if a digital service provider’s global financial statement shows a loss or a profit below the FIRS’s expectations, the latter should tax Nigerian revenue at a “fair and acceptable proportion.” 

C. The authority of the FIRS of appointing non-resident service providers as VAT collectors 

The VAT Act (as modified by Finance Acts 2019 and 2020) requires non-residents who make taxable deliveries to Nigerian consumers to register and account for VAT on invoices above 25million NGN . Previously, a non-resident provider had to register for VAT and charge it to Nigerian consumers. The Nigerian receiver must thus deduct the VAT charged at source, allowing the FIRS to easily administer VAT.  

However, these rules left a loophole in the administration of VAT on digital platform deliveries to individual consumers, since these customers did not comply to the VAT deduction and remittance obligations. FIRS is authorized to appoint any person to withhold or collect and remit output tax in the currency of the transaction on or before the 21st day following month under Section 30 of Finance Act, 2021 [Section 14(3) of the VAT Act] to remedy these gaps. 

To conclude, the Act’s amendments are intended to signify continued fiscal net growth and harmonisation with global best practice for the taxation of new sectors of the modern global economy, notably global digital trade, ease administration, and generate revenue for the government. 

Source: firs.gov.ng

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