How Nigeria is planning to bring non-resident online companies to tax
Following their proposal to begin taxing online businesses and also charge Value Added Tax (VAT) on online purchases, Nigerian government is planning to set a monetary threshold for non-resident online businesses, as a way to wriggle-out of the provision of tax law on Permanent Establishment (PE)
The proposal to tax non-resident companies met a brick wall after due consideration of the PE law which says that a company would only be liable to pay tax in a state or country if the company is a Permanent Establishment (PE) in that country. To be considered a PE, the company must be seen to have a fixed place of business which generally gives rise to income or value-added tax liability in that particular jurisdiction.
Currently, a tax policy review committee is sitting in Abuja Nigeria to review the National Tax Policy document and make necessary changes in order to plug what they consider loopholes in the tax economy.
A credible source who is a member of the committee told Discover Africa News that the committee had to set monetary threshold on the basis of which a non-resident or non-PE could be considered liable to tax charges in Nigeria.
“We must say, okay, if a non-resident company makes a 3 billion Naira worth of transactions in Nigeria, such company would be considered a PE and liable to tax. In that way, we bring them to the tax net in Nigeria. Otherwise, it would be difficult to tax these big international online businesses which do businesses across the world and still are not considered PEs in those countries. They sit in Europe and America and make profits running in billions of dollars in countries across the world. But if we have a threshold to hold them, once they meet the threshold in your country, then, you hold them liable to pay taxes”, the source said.
The Executive Chairman of the apex tax authority in Nigeria, the Federal Inland Revenue Service (FIRS), Tunde Fowler had said the country is planning to begin taxing online businesses by the beginning of the next year, 2020.
Nigerian taxpayers have criticised ‘introduction’ of a new tax regime but the tax authority has explained that the tax is not a new one but one that has never been implemented.