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Taxation in a Changing World: Strengthening Legislative and Regulatory Frameworks for Taxing E-Commerce in Nigeria.

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Taxation in a Changing World: Strengthening Legislative and Regulatory Frameworks for Taxing E-Commerce in Nigeria.

Taxation in a Changing World

Article By John Kennedy Igbozurike

300 Level Student,

Faculty of Law,

The University of Lagos.

[email protected]

Linkedin profile:


Special gratitude to Olukunle Orimijupa B.Sc, M.Sc, AAT, ACA, ACTI, ACIS, FCPM, Naphtali Ukamwa, Esq. and Gbolarin Oloyede for the insights contributed and timely reviews granted each time I reached out.



This is to affirm that this literary compilation is an original work with expenditure of effort, labour and skill by the author and owner, John Kennedy Igbozurike. Intellectual property rights pertaining to the work are vested in the aforementioned individual.



The author grants an extension of intellectual property rights to Legalpedia Nigeria LTD to publish this work.



  • Abstract

The online industry has grown at 17% over the past five years in 2013[2]; in 2018, the growth stood at 13% and Nigeria, particularly the city of Lagos, has a developing e-commerce sector.[3] The 2015 African Retail Development Index identifies Nigeria, Ghana, etc. as “not only the most attractive markets today, but also those that offer the most potential in the future.”[4]

Indeed, this upward slope in data demand connotes a goldmine. However, the Nigerian legal framework for collecting taxes has over the years, proven to be largely inefficient as an estimated 60% of the tax potential remains largely untapped, analysts say. “Given the rising statistics on the digital economy and its immense potential, it has become expedient for the Nigerian tax authorities to explore a more creative approach to ensure effective taxation of the digital economy.”

The aim of this paper is to succinctly discuss the challenges associated with the Nigerian taxation system, in the face of new technology vis à vis the integration of ICT into the tax administration system otherwise known as e-tax with a view to proffering practical solutions to the conflict of laws arising there from.


Keywords: Value Added Tax, Revenue, Jurisdiction, Source, Legislative Amendment, Entertainment, Media, Internet Service Provider.


  • Introduction

Traditionally, commercial transactions were undertaken with the traditional perception of a market in mind and taxation of these market activities have been a source of government revenue. Global industrialization and efficiency in the factors of production and distribution of goods and services has significantly altered the primordial perception of a market from being a designated location for exchange of goods and services to boundless geography underpinned by daily human interactions in search for ways to meet their basic needs. This trend is the same with developed and developing economies like Nigeria.[5]

Digitalization has led to tremendous transformation in every sector globally.[6] Nigeria is aiming at tapping into this opportunity in order to harness the potential of technology both for economic development and revenue generation as e-payment services hit N56.85Tn.[7] One of the employed mechanisms is via the taxation of digital transactions.

At this point, it’s imperative to consider the concept of taxes. Taxes are non-penal payments made by individuals and corporate bodies in the society where the state has jurisdiction to collect on the basis of a presumed social contract that exists between the taxpayer and the government. It is also defined as the compulsory extraction of money for public purposes.[8] In view of this rationale alongside the provision of social amenities [9]to its citizens, it is sacrosanct to pay tax; this is the basis for taxation. It is imperative to note that tax is backed by law, compulsory, levied on audit[10] inter alia because tax ought to be viewed from its essential characteristics rather than its name.[11] Types of taxes that are paid in Nigeria include: Companies Income Tax (CIT), Value Added Tax (VAT)[12], Personal Income Tax (PIT) inter alia.[13] In Nigeria, tax appears on the concurrent legislative list consequently empowering both the federal and state governments to levy and collect taxes within defined jurisdictions and across different tax types. The Federal Board of Inland Revenue and the various State Boards of Internal Revenue are saddled with the legal responsibilities to impose tax on its citizens and corporate entity both in the public and private sector of the economy. The tax authority now has autonomy to assess, collect and record tax. This enabling environment which came into being on the basis of Section 8(q) of FIRS Establishment Act 2007 has led to an improvement[14] in tax administration in the country.[15]

Ecommerce on the other hand, refers to any transaction conducted over the internet or through internet access, comprising the sale, lease, license, offer, or delivery of property, goods, services, or information, whether or not for consideration, and includes the provision of internet access.[16]

There are multiple variants of transactions such as: SaaS[17] (Fintech[18], profiling), digital services such as online advertisements and stores, platforms e.g. Jumia[19], Uber[20] inter alia[21]. Payments are done without physical transfer of money between customer and merchant irrespective of place and time.[22] Though conquerable, this of course, wouldn’t be an easy feat bearing in mind, the problems of online jurisdiction, evasion inter alia.

This paper sets out to examine the importance of taxing e-Commerce with a view to generating revenue for Nigeria consequently developing the nation in the long run. It examines the pressing issues of online jurisdiction or province, the civic duty of municipal Internet Service Providers to pay their taxes, the fertility of the entertainment and media industry in the generation of revenue via taxation. It also revisits the antique discourse of double taxation; the need for the Nigerian government to enter into more double taxation agreements with foreign jurisdictions.[23]



3.0 Overview of Challenges Pertaining to the Taxation of E-Transactions in Nigeria

The trend with technology, new models of commercial interactions are developing as business and consumers participate in an increasingly virtual or electronic market place and reap its attendant benefits. New technology has made it possible to pay for goods and services over the internet and in many instances, displace the need to handle physical cash. However, the advent of electronic commerce as a result of the development of the internet has brought with it a number of legal and socio-economic issues. Despite its promise, the problem is that the internet lacks the clear and fixed geographic lines of transit that traditionally characterize the physical trade in goods and services.[24]

Although the challenges are universal, the peculiar problems of online jurisdiction, obsolete legislations[25], as well as widespread ignorance make taxing electronic commerce all the more intriguing in Nigeria.[26] Added to these is the sophistication and complexity of the technology involved in such transactions.[27]

It is against this backdrop that this paper sets out to distill and proffer panacea to front burner issues within the purview of taxation.


4.0 Inquisition into the Feasibility of e-Commerce Taxation in Nigeria

In Nigeria, a 5% VAT[28] flat rate applies on all VATable goods and services.[29] Vendors that are registered with the Federal Inland Revenue Service (FIRS)[30] and provide VATable goods and services are under obligation to collect VAT on all its products and services. The workings of VAT; individuals and companies that are registered as VAT agents are agents of government for the purpose of collection of VAT for transactions.[31]  . At the moment, in the light of pragmatism, only Ministries, Departments and Agencies (MDAs’) alongside the oil sector (upstream and downstream sectors) are allowed to deduct Value Added Taxes at source and remit same to government.

Taxation of e-commerce is a fruitful field which the government is yet to tap into.[32] Let us take the VAT regime for example. VAT at its current rate of 5% rate is charged on all VATable goods and services supplied in Nigeria. Sellers are obliged to charge, collect and remit VAT on their sales to the FIRS after proper allowance or deductions of the related input VAT from their own purchases. The challenge of the government however, isn’t the fact that these businesses already charge VAT on their products, rather, it’s the underreporting and non-remittance of VAT to the Treasury Single Account (TSA) as there is no online mechanism to monitor the totality of these transactions and also, government isn’t privy to these individual transactions, the government is unable to monitor all the transactions in the cyberspace. This is why government needs to enter into this equation; in order to ensure that the moment the transaction is consummated, the money is distributed at source on the basis of equity (5% goes to the government). What government is trying to achieve is the collection of taxes at source rather than leaving the remittances and filing of taxes to vendors of products and services who ultimately, as experience has shown, underreport their transactions so that they short-change government on the amount of taxes that are due.[33] The challenge of underreporting of revenue can be eliminated when the government is plugged into the loop. In order to do this, the Nigerian government should mandate businesses to register with the Ministry of Communication which would in turn, collaborate with Internet Service Providers (ISPs’) to create plug-ins in order to monitor these transaction, deduct taxes at source on each transaction concluded by e-Commerce ventures and remit taxes directly to the government. Collaboration between commercial banks in Nigeria and the Nigerian government would also go a long way in monitoring transactions undertaken by these online vendors.

The recent policy proposition by the Federal Government[34] relating to the charge of VAT on online purchases was met with stiff resistance. Antagonists posit that it is likely to result in an increment in the cost of products and services which will ultimately lead to cost push inflation. Although arguable, the above proposition appears invalid as most online retail businesses that vend VATable products already include VAT in their product prices and what they do not do, is remit the correct amount of VAT so deducted. Since the final consumer bears the brunt of the VAT on each purchase, collecting VAT at source will likely lead to a situation where these online retailer push the cost of effective VAT collection to the consumers in order to maintain their profit margin. Once this is done, even before these companies file and send their annual report to the FIRS, the government would have already collected their money at source. This curbs the issue of doctoral of information. In as much as government may want to undertake this path  in order to curtail tax evasion or underreporting of taxes, there may be a challenge they would have to contend with and this is confidentiality of transactions; whether classified vendors would be willing to divulge all their online transactions to the Nigerian government for the purpose of remitting taxes. It then becomes a matter of balancing conflicting interests of which taxation would prevail because of its benefit to the general public.

In the light of withholding taxes, the government is advised to collect taxes at source (at the point of transaction) so that the moment the transaction is consummated[35], that which belongs to government goes to the government while that which belongs to these online businesses are allotted to them in order to avoid evasion and ensuring regulation is enforced.


4.1 Harnessing the Potential of Nigerian Entertainment and Media Industry in Order to Generate Revenue

In the Entertainment and Media industry, PricewaterhouseCoopers’[36] Entertainment and Media Outlook report[37] anticipates a 21.5% Compound Annual Growth Rate for Nigeria’s E&M[38] industry by 2022 with revenue reaching $9.9 billion and that internet access, being the key driver of the economy in the area of ICT, will account for 89.6% of the projected growth.[39]  However, the challenge from companies such as Netflix, Instagram and Apple Music[40] has always been accountability in that the government is unable to determine who and what transactions are being consummated and how much of taxes are due to the government on these transactions. The idea of taxing e-Commerce would open a new window to revenue generation which would bear semblance with withholding taxes which provides a step by step, immediate basis of revenue collection for the government. This eases flow of revenue to government and solves the challenge of accountability in the determination of VAT that is due. It also curbs the challenge of illicit financial flow. In this regard, the benefactors and beneficiaries of the crimes of money laundering[41] and fictitious transactions become wary of the fact that they lose 5% VAT at source for every transaction. So, the more transactions they execute, the more they lose money. This would keep them at bay.

The taxation of e-Commerce is the future of taxation because by virtual reality and online transactions, a lot of money is moving; a lot of businesses are being consummated. A person in Nigeria can be concluding a business discourse with another in Europe because ICT has made the world a global village. What level of monitoring is available? In the light of exemplification, Netflix purchased Genevieve Nnaji’s “Lion Heart” for $3.8 million[42] which is being downloaded worldwide. Based on double taxation[43] treaty, a percentage of that money should come into Nigeria in form of taxes. Government should also look for ways to create liaison with Internet Service Providers (ISPs’) to copy raw data on transactions that are VATable.

The sale of music online on platforms such as Apple Music, SoundCloud and a host of others is another zone that requires that attention of the government in the light of taxation. They remit taxes to their home government, and underreport their VAT to the Nigerian government. It is a matter of utmost importance for the Nigerian government to start taxing at source in order to monitor and maximize revenue for the nation.


4.1.1 How Illegal Activities of ISPs Affect Taxation

With regards to service providers such as MTN Nigeria[44], Spectranet[45] etc that generate revenue from sales of data, there is a need to monitor and charge VAT on these data they supply to their customers. In 2017, MTN was fined $5.2 billion for failure to deregister over 5.2 million unregistered subscribers from their database[46] which in turn was followed by an action for illegal repatriation of funds.[47] Transactions undertaken by the unregistered MTN lines are also likely to be used for illicit financial flows and because government isn’t able to trace attach a name to that transaction and determine VAT that is to be paid by these online vendors.[48] There is need for the government to harness the deterrent effect. Campaigns should be commenced in order to publicize the recovery of public revenue, as this boosts taxpayer morale, reinforces the deterrent effect and lend support to further expansion of the use of technology tools in preventing and detecting tax fraud.[49]


5.0 The Quandary of Online Jurisdiction and its Nexus with Nigerian Legislative Framework: Challenges and Panacea.

Defining the province of the digital economy is quite challenging because of the ever-changing contours of the ICT sector and the pervasive connection of the digital economy to the entire economy.[50] This complexity gives rise to questions like: where are the originating taxing point and the destination point? Is it somebody who is selling music in America or somebody who is buying in Nigeria? Where is the incidence of taxes? Where should tax be charged? This has always been the challenge and because of the problem of capital flight transactions which now happen within and without the Nigerian jurisdiction via online platforms. It is submitted that the service provider in the locality where this transaction is consummated (where the music is purchased) should be the originating point while the seller should be the destination point. In terms of selling the buyer is originating the buying and selling. In taxation, the focus is who is purchasing the product and where he purchasing from. If both the buyer and seller are within the Nigerian jurisdiction, they are both liable for taxes to the Nigerian government. If only the buyer is within Nigerian jurisdiction, the seller is liable to payment because Nigerian currency goes out to the foreign jurisdiction.[51] On this basis, VAT should be charged before the money goes out.[52] Nigeria should therefore charge VAT on purchases within its jurisdiction.[53]

In order for this to come to fruition, there is need for the amendment of obsolete legislations[54] in order to bring them to conformity with 21st Century technological advancements.[55] Particular reference should be made to Section 13 of the Companies Income Tax Act (CITA) which implies that a non-resident company[56] must have physically performed activities in Nigeria, directly or indirectly, before such a company can be liable to income tax in Nigeria. This provision has made it difficult for FIRS to establish liability of such foreign companies to Nigerian tax.[57] The legislature is encouraged to emulate and give statutory backing to the decision of the FHC[58] in the case between Vodacom Business Nigeria Limited v. FIRS[59]. The court ruled in favour of FIRS and held that the Nigerian company was required to account for the VAT on such transactions regardless of the fact that the supplier or foreign company had no physical presence in Nigeria.

Digital transactions require little or no physical presence of the transacting parties, the income from the transaction may not be captured in the jurisdiction where it is derived.

The aforementioned challenges are usually resolved by double taxation treaty[60] which is a prerequisite for the aforementioned solution to apply.

In addendum, it is important for the government to establish a liaison between the state and federal actors[61] on one hand and with the Internet service providers so that there is quality monitoring of transactions for the purpose of determining how much taxes are due so that the challenge of capital flight is reduced.[62]


5.1 Comparative Insight from the European Union Province

Comparatively, the European Commission has previously worked on a review of the tax rules of the 6th VAT Directive irrespective of the mode of sale.[63] Subsequently, another working paper was prepared for a review to apply VAT to transactions relating to internet delivery among others[64].

As part of its efforts, the European Union’s directive requires a non-EU company engaged in the trade of digital goods and services to undertake a VAT registration in EU member states[65] thereby engaging in tax collection and remittance. Though it is conducted on a temporary basis, it was finalized when the EU member state via a “special scheme” arrangement shared the remitted VAT among the different EU States participatory in the sale.[66]

In March 2018, the European Commission proposed new rules to ensure that digital business activities are taxed in a fair and growth-friendly manner in the EU. The commission has made two legislative proposals.

One proposal recommends that member states apply an interim tax on companies that generate annual total revenue of over £750 million and annual total revenue of £50 million from digital activities in the EU. The interim tax is to cover the main digital activities that currently escape tax in the EU and is to be levied at 3% on the gross revenue of business derived from online advertising, sale of collected user data and other digital services.

The other proposal seeks to introduce the concept of a “taxable digital presence” or a Virtual Permanent Establishment (VPE). A VPE is designed to introduce a taxable nexus for digital businesses operating within the EU with little or no physical presence.[67]

Indeed the progress made by the EU in the light of legislative innovation and advancement is truly commendable. It is humbly submitted that Nigeria should endeavor to emulate the footsteps of the EU states by amending its legislative framework.


6.0 Conclusion and Recommendations

Given the rising statistics on the digital economy and its immense potential, it has become expedient for the Nigerian tax authorities to explore a more creative approach to ensure effective taxation of the digital economy.[68]

Taxation being a relatively cheaper source of revenue[69] in terms of absence of implicit cost, unlike borrowings which accounts for the rising debt profile of Nigeria[70] wherein Nigeria was ranked 184th [71] in the world on borrowings from countries like China who are also suppliers of internet enabled products/devices like mobile phones to Residents of Nigeria.

There have been fiscal policy reengineering within the international community to develop new and effective ways of addressing the challenges of e-commerce in line with the principles and practices of taxation. The Nigeria tax authorities such as FIRS and State Inland Revenue Services (SIRS) should propose bills to the National Assembly to amend the existing tax laws as well as initiate moves to block the huge loophole in our tax system.[72]

Even more so, considering the fact that taxation of online transactions is a burgeoning enterprise, a resolution of the issue of online jurisdiction is highly recommended. Taxes from bilateral transactions should accrue to the originating point (the point of initiation of purchase). In the light of this, it is sacrosanct for the Nigerian government to impose taxes on purchases of foreign products made from Nigeria.

Furthermore, collaboration between the Nigerian government and municipally operating Internet Service Providers is encouraged.[73] This would aid the government in retrieving taxes from these transactions without having to worry about these online vendors underreporting their revenue because taxes would be charged at source thereby replicating what we have in our Oil and Gas Sector today.

In conclusion, though the issues of e-commerce taxation seem to be unsettled, we must begin discussion that will lead to the significant simplification and reform of current tax systems[74] if they are continue to remain viable in the future.[75]



* Corresponding Author – Igbozurike John Kennedy: LL.b Candidate, Faculty of Law, University of Lagos

[2] Within the space of 2013-2014, Nigeria’s internet subscriber base rose from 48.2 million to 67.4 million. This has led to the emergence of Nigerian e-Commerce platforms like Jumia, Kongs, Dealdey amongst others. See O. Adeniji, “E-Commerce Opportunities in Nigeria”

[3] Eran Feinstein, “The Rise of Entrepreneurship and E-commerce In Africa”, January 7, 2014 (accessed 10th September, 2019)

[4] (accessed 10th September, 2019)

[5] See G. Henshaw, “e-Commerce Income Tax Regime in Nigeria”, eCommerce, Taxation Volume 1 Issue 2 available at (accessed 13th September, 2019)

[6] In USA for instance, it has been stated that the rapid growth of electronic commerce, along with changes in information, computing and communications, is having a profound effect on the country’s economy. See E. Brynjolfsson & L.M. Kahin, “Understanding the Digital Economy – Data, Tools, and Research, (MIT Press: Cambridge, 2000) p.1; M. Peitz & J. Waldfogel, The Oxford Handbook of the Digital Economy, (Oxford University Press: Oxford, 2012) p. ix; OECD, “OECD Digital Economy Outlook 2015” p. 1 > (accessed 10th September, 2019)

[7]See NIBSS, “Nigeria’s e payment transactions hit N56.85trn” available at (accessed 12th September, 2019). Tapping into this opportunity would aid revenue generation and subsequently, a bloom in our GDP.

[8] Per the court in Matthew Chicory Marketing Board (v) 1935 60 CLR, 263 at p;276. See also, US v. Butter (1936) 227 9U & I at 61

[9] See generally, A. Ipaye,  “Philosophy and Functions of the Tax System

[10] S.O Mohammed, “Law of Taxation II”- National Open University of Nigeria.

[11] Ipaye A., “Overview of the Tax environment: Issues and Challengesin Abdulrazaq M.T (eds.) CITN Nigerian Tax Guide and Statute (2nd Edition) Lagos, Chartered Institute of Taxation of Nigeria, 2002.

[12] The Value Added Tax (VAT) was introduced in Nigeria in 1993 by the Federal Military Government. Before then, Sales tax was under the jurisdiction of the States and generally poorly administered with marginal contribution in terms of revenue. The idea of introducing VAT was recommended by the Study Group set up by the Federal Government in 1991 to review the tax system of the Federation as a replacement of Sales Tax. After extensive deliberation and consultation, VAT was introduced on 24th August 1993 as a federal tax by the Value Added Tax Decree. See Prof. A. Sanni, “Current Law and Practice of Value Added Tax in Nigeria”, British Journal of Arts and Social Sciences Vol.5 No.2 (2012)

[13] According to Federal Inland Revenue Service. (accessed 10th September, 2019)

[14] This mandates the service to assess persons including companies, enterprises chargeable with tax inter alia. This was affirmed by the Federal High Court in Theodak Nigeria Limited v. FIRS where the court stated that section 30(1)(a) allows FIRS to assess the company to tax on turnover

[15] See L. Opara, “Tax Challenges Of E-Commerce In Nigeria: The Panacea For Legal Jurisprudence”, Global Journal of Politics and Law Research Vol.2, No.4, p.1, October 2014

[16] Internet Tax Freedom Act, Pub. L. No. 105-277, § 1104(3), 112 Stat. 2681 (1998)

[17] Software as a Service.

[18] Financial Technology. In Nigeria, we have CowriePay, eTranzact amongst others that are startup Fintech companies.

[19] In 2012, Rocket Internet, backed by Swedish investment firm Kinnevik launched Jumia, Nigeria’s pioneer e-Commerce platform. As at 2014, Jumia was estimated to be worth $555 million.

[20] Tom Goodwin states that the world’s largest taxi firm, Uber, owns no cars yet generates the highest revenue among all other tech-inclined transit firms. (accessed 10th September, 2019). See also “Taxation of e-Commerce: Matters Arising”- PWC

[21] PWC, “Taxation of e-Commerce”, May 2019 Bulletin

[22] As more people rely on the Internet for shopping, the government stands to lose billions of Naira in sales tax revenues if e-commerce is not taxed. See P. Romero and J. Wilburn, ”E-Commerce and Taxation”, Graziado Business Review, 1999 Volume 2 Issue 3 available at (accessed 13th September, 2019)

[23] In Nigeria, the OECD model has served as the basis on which most of the current double taxation treaties (DTTs) with other countries have been formulated. Nigeria currently has DTTs with thirteen countries namely: The United Kingdom, The Netherlands, Canada, South Africa, China, Philippines, Pakistan, Romania, Belgium, France, Mauritius, South- Korea and Italy. All the treaties are comprehensive except the treaty with Italy which covers Air and shipping agreement only. See Deloitte, “Improved Double Tax Arrangements in Nigeria: Any reason for delay” Available at (accessed 12th September, 2019)

[24] Supra Note 15 at p. 2

[25] “Taxation of Nigeria’s digital economy: Challenges and prospects.” (Andersen Tax article May, 2019) (accessed 10th September, 2019)

[26] Without fully embracing technology it will be difficult to realize Nigeria’s dream of becoming one of the largest economies in the world by 2020. Online filing and tax payment should be introduced to reduce the compliance time and the associated cost. It will also help reduce human interaction between the taxpayers and the tax officials which could also help in checking sharp practices. Nigeria should embrace technology in tax administration to support electronic remittances and filing of returns which will reduce the burden on taxpayers and make doing business easier. See PWC, “Nigeria @ 50: Top 50 Tax Issues”, October, 2010 tax bulletin.

[27] Oduntan, Olugbemi Adebayo, “Taxation of Electronic Commerce: Prospects and Challenges for Nigeria” (August 2010). Available at SSRN: or

[28] On 11th of September, 2019, the Federal government proposed an increment of the 5% to 7.2%. The Minister of Finance however, noted that this would only take effect once the VAT Act is amended by the National Assembly. See “FG increases VAT to 7.2%” available at / (accessed 11th September, 2019)

[29] Comparatively, among the Southeast Asian countries, Indonesia, Thailand and the Philippines levy VAT at 10 per cent, while Singapore has a 3 per cent VAT. Malaysia has been gradually broadening its manufacturing level sales tax and a tax on services as steps towards the eventual introduction of a VAT. Vietnam introduced a VAT in January 1999, at rates varying between 0-20 per cent. All countries levy excise taxes on selected commodities. See M.G Asher, “Globalization and Tax Systems: Implications for Developing Countries with Particular Reference to Southeast Asia” ASEAN Economic Bulletin, Vol. 18, No. 1, Economic Globalization and Asia: Trade, Finance, and Taxation (April 2001), p.123

[30] See the Implication of such registration at Infra Note 52

[31] For instance, a vendor wants to sell a pen for #100 (VAT exclusive) however, by virtue of VAT that’ll be remitted, the vendor would sell the pen for #105 (which is VAT inclusive) and remit 5% to the government on the buyer’s behalf as the vendor pays the VAT on behalf of the buyer being an agent of government for the purpose of collecting VAT on the transaction. The government doesn’t know about this transaction so the vendor is obliged to collect that #5 as VAT and pay to government on the buyer’s behalf which would be the vendor’s own turnover figure. The duty of the seller is to deduct withholding taxes and remit to the government. For the purpose of reiteration, the problem is the accountability of these online vendors.

[32] I. Okechukwu, ICT and Taxation”

[33] It has been discovered that most foreign online vendors either evade or underreport their revenue. In a bid to eliminate such practices, Nigeria is encouraged to emulate the United Kingdom where the ‘diverted profits tax’ that is also called the ‘Google Tax’ was introduced in 2015. The basic idea behind the diverted profits tax is that profits generated in the UK and diverted to other countries are taxed at 25%, which is higher than regular corporation tax. The underlying idea is that this measure makes tax avoidance less attractive. See “Google Tax” available at (accessed 13th September, 2019)

[34] On the 26th of August, 2019, the Chairman of the Federal Inland revenue Service (FIRS), Mr. Babatunde Fowler said that Nigerian banks would start charging Value Added Tax on local and foreign online transactions by January, 2020. He noted however that this would require legislative backing to be implementable. On the face of it, it may appear as a new notion but an in-depth study would reveal that it is not. See “FIRS imposes VAT on online transactions January” available at (accessed 13th September, 2019)

[35] Currently, most of these transactions are consummated without the relevant transaction and income taxes accounted for either of the parties. See Supra Note 15 at p. 2

[36] A multinational professional services firm with a  network of firms in 158 countries

[37] PricewaterhouseCoopers’, “Entertainment and Media Outlook:2018-2022: An African Perspective”

[38] Entertainment and Media

[39] Nigeria’s Entertainment/Media industry revenue’ll hit $9.9b by 2022 available at (accessed 9th of September 2019)

[40] In 2016, Apple Music announced that it had attracted 20 million subscribers of which 1.5 million were Nigerian subscribers. These customers pay as much as $8.99 on each transaction coupled with the unpublished exchange rate on the platform, the company is raking in multiple millions of dollars and the Nigerian government isn’t allotted taxes for the purchases made by its citizens. Https:// (accessed 9th of September, 2019)

[41] Prohibited by the Money Laundering Prohibition (Amendment) Act 2004. The amendment was based on two philosophies: The need to control the practice of huge financial transactions in Nigeria and a requirement of disclosure of any financial transaction exceeding a certain sum of money.

[42] (accessed 9th of September 2019)

[43]The effect of a double taxation is the elimination of double taxation in order to increase Foreign Direct Investment alongside the prevention of tax evasion. Nigeria is encouraged to replicate the provisions of its double taxation treaty with the United Kingdom in its negotiations and business engagements with the United States of America

[44] MTN Nigeria, in 2018, attracted N9.7 trillion which is tantamount to 9.5% of Nigeria’s GDP last year. Equity Research: MTN Nigeria Initiation Report. FBN Quest Capital. (accessed 10th September, 2019)

[45] A telecommunications company that has “nearly 50% of the customer market share comprising SMEs and Nigerian households”. See

[46] $1000 was placed on each SIM card they failed to deregister

[47] The South African Telecoms Giant breached Section 20(1) of the Telephone Subscribers Regulation by failing to deregister Subscribers Identification Modules (SIM).$5.2_billion_fine (accessed 10th September, 2019)

[48] Although this is yet to be settled, it is a step in the right direction for the purpose of curtailing illicit financial flows arising from such transactions. It also aids the government generate revenue thereby culminating in national development.

[49] This report draws on the experience of 21 countries in this area, including several developing countries, and highlights their key successes in using these technology tools. Not only has substantial tax revenue been raised due to the reduction in tax evasion and tax fraud, but where these solutions have been implemented; a deterrent effect is shown, with overall increasing compliance by taxpayers. See OECD Report, 2017, “Technology-tools-to-tackle-tax-evasion-and-tax-fraud” at pp.3&29

[50] BEPS Action 1 (2015), p. 11

[51] The principles of source and residence have formed the basis for taxation internationally. See Supra Note 25.

[52] The Federal High Court set aside the Tax Appeal Tribunal (TAT) ruling of 2012 exonerating Gazprom Oil & Gas Nigeria Limited (Gazprom) from paying VAT on services supplied to it by non-resident entities in a matter between Gazprom V. FIRS. Gazprom had appealed to the TAT against VAT assessments served on it by the Federal Inland Revenue Service (FIRS), resulting from payments by Gazprom to some non-resident consultants. The FHC relied on the Mischief Rule (in the interpretation of tax statutes) which interprets tax statute by trying to ascertain the intention of legislature at the time of making the law. In this context, the intention of the VAT Act is for revenue generation from goods and services supplied, therefore, relying on the non-inclusion of VAT on the invoice issued by a non-resident company as a basis of tax avoidance defeats the purpose of the legislation. In essence, the court held that virtually all services purchased from abroad are liable to VAT in Nigeria. See also, Court of Appeal Judgment in the case of Phoenix Motors Limited V. National Provident fund Management Board (1993) 1 NWLR pt. 272 p. 718

[53]  In cases of online advertising likewise, in order to make online advertising feasible in terms of taxation, the location not of the online corporation, but of the user is key; it is the location where the service is performed, data and content are created, and where taxation should take place. See C. Fuchs, The Online Advertising Tax: A Digital Policy Innovation.” Policy Brief 1 pp.13-15

[54] The digital economy raises broader tax challenges for policy makers. These challenges relate in particular to nexus, data and characterization for direct tax purposes, which often overlap with each other. See OECD, 2019, “Addressing the Tax Challenges of the Digitalization of the Economy”, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris.

[55] Developing countries must take the lead of the OECD in undertaking analyses of how e-commerce will impact the tax base and tax regulations, administration and compliance for specific taxes such as the VAT, and plan for a coordinated approach to tackle the challenges posed by the Internet. Supra at p.132

[56] A Non-resident is liable to taxation on income derived or received from Nigeria. Nigeria’s tax regime defines a Non-resident individual as a person who derives income in Nigeria but is not domiciled in Nigeria or does not stay in Nigeria for more than 183 days within a twelve months period. See Stillwaters Law, “Taxation of Non-Residents in Nigeria” available at (accessed 13th September, 2019)

[57] Supra Note 25

[58] Federal High Court. A court established and recognized by Section 249 of the 1999 Constitution

[59] Appeal Number: FHC/L/4A/2016

[60] Nigeria currently has double taxation treaties with only 12 countries many of which are not major trading partners with Nigeria. One of the reasons why the Netherlands is a popular investment holding destination is because of the country’s wide treaty network with about 100 countries. The UK has treaties with over 80 countries while South Africa has over 60 including treaties with major countries such as the United States. To be competitive in the global stage, Nigeria must improve its double tax treaty network and provide equivalent unilateral relief where there is no double tax treaty. See Supra Note 19 at p.6

[61] This encompasses the Federal Inland Revenue Service and other State Inland Revenue Services

[62] If online transaction is estimated to be $150 billion for instance, on the assumption of corporate tax, it is expected that in the next five years, year-on-year, Nigeria would earn $45 billion as taxes ceteris paribus

[63] European Commission, Directorate General XXI, Working Paper No 1 “Harmonization of turnover taxes” Working Paper, 8 June 1999. See (accessed 12th September, 2019)

[64] Proposal for a regulation of the European Parliament and of the Council amending regulation (EEC) No. 218/92 on administrative co-operation in the field of indirect taxation (VAT) and proposal for a Council Directive amending Directive 77/388/EEC as regards the Value Added Tax arrangements applicable to certain services supplied by electronic means (2000) 349 June 7, 2000, Brussels.

[65] Council directive 2002/38/EC amending directive 77/338/EECD; EU (2002), Official Journal of European Communities.

[66] Commission Proposal for a Council Directive Amending Directive 77/388/EEC; EU (2002), Official Journal of European Communities.


[67] Supra Note 21 at P.1

[68] Ibid.

[69] S. Yitzhaki, “A Note on Optimal Taxation and Optimal Costs, the American Economic Review Vol. 69, No 3, pp. 475-480. Https:// (accessed 9th of September, 2019)

[70] Nigeria’s debt stands at N24.387tn (12.5% expansion from the preceding year). Debt accrued as at December 31, 2018. (accessed 9th of September, 2019)

[71]Central Intelligence Agency: The World Fact book: Public Debt (accessed 9th of September, 2019)

[72] Supra Note 15 at p.5

[73] It’s no longer news that ISPs’ can see virtually all the transactions we execute online ranging from the sites we visit to the information we exchange etc. In order to take full advantage of this, government should make it a point of duty to collaborate with these Internet Service Providers. In exchange for the provision of information pertaining to e-Commerce activities, the government can grant tax incentives to these ISPs’. See  >> (accessed 13th September, 2019)

[74] See M.G Simkin, Pros and Cons of E-Commerce Taxation, International Business &Economics Research Journal Volume 1, Number 2 available at (accessed 13th September, 2019)

[75] While bearing at the back of our minds, the primacy of national development and the importance of eliminating debts in order to achieve that goal, the evergreen words of Herbert Hoover; “there are three ways to meet the unpaid bills of a nation. The first is taxation…” must never be obliterated from our memories.

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