American International Journal of Business Management (AIJBM)

ISSN- 2379-106X, www.aijbm.com Volume 3, Issue 4 (April 2020), PP 01-09

The Implementation of Value Added Tax (Vat) On

E-Transactions in Nigeria: Issues and Implications
1
Raphael S. Etimphd, 2Ofonime O. Jeremiah,
3
Augustine Udonsek
1
Department of Accounting, University Of Uyo, Uyo P.M.B 1017, Uyo, Akwa Ibom
State, Nigeria Tel: +2348035048148
2
Department of Accounting, University Of Uyo, Uyo P.M.B 1017, Uyo, Akwa Ibom
State, Nigeria Tel: +2348121887114
3
Department of Accounting, University Of Uyo, Uyo P.M.B 1017, Uyo, Akwa Ibom
State, Nigeria Tel: +2348028256762
*Corresponding Author: 1Raphael S. Etim

ABSTRACT:- This study was carried out to empirically examine the issues and implications of implementing
VAT on e-transactions in Nigeria. The survey research design was adopted for the study. The population of the
study comprised FIRS Officers, tax researchers, tax practitioners, as well as operators and clients of e-
transaction activities in Nigeria. A sample of 125 respondents selected from each of the afore-mentioned
population categories using the convenience approach and a structured 5 point Likert scale questionnaire was
administered. The responses in the 117 copies of questionnaire which were returned by the respondents were
tabulated and frequencies, simple percentages and rankings were used to analyse the responses. The findings,
among other issues, highlighted poor implementation of existing tax laws as well as the need to modify and
update tax laws as the major challenges of implementing VAT on e-transactions in Nigeria. It is recommended
that Government should intensify its effort in making new relevant laws, updating existing ones and ensuring
proper implementation of the laws. Also, adequate taxpayer education on the modalities and essence of the e-
transactions VAT should be spearheaded and sustained. A dynamic system of compensation should be designed
as an encouragement cushion for those who comply with the VAT.

Keywords: Value Added Tax, e-transactions and taxation

I. INTRODUCTION
The dynamism of the business environment and the rapid technological revolution of the 21 st Century
has reshaped the model of business practices in recent times (ACCA, 2016; Jeremiah and Daferighe, 2019). The
evolving dimension of business practices that have arisen as a result of the spread of these developments include
the e-transaction model which has brought about a number of benefits in terms of enhanced business
opportunities and growth, employment, as well as increased general societal wellbeing due to access to a diverse
range of goods and services. This is so because the evolution of technology and the resulting possibilities of e-
transactions has significantly increased the capability of businesses to source factor inputs from suppliers,
acquire information and undertake transactions with private and institutional consumers around the world
without having to be physically present them in the same geographical location (OECD, 2014).
It has however been noted that as globally laudable as the possibilities of e-transaction has proven to
be, it has its revenue downside for most governments. This is particularly in the area of assessment and
collection of the Value Added Tax (VAT). VAT is an indirect goods and services tax which is levied on
qualifying goods and services, the final burden of which is borne by the final consumer of such goods or
services (Bassey, 2013). However, the online nature of the e-transactions makes it difficult for the assessment
and collection of the VAT. This often results in no VAT being realized from these e-transaction flows thus
adversely affecting VAT revenues of governments (OECD, 2014). This observance has aroused the concern of
governments on how the tax net could be effectively and efficiently extended to cover the tremendously
increasing volume of e-transaction activities in order to reap commensurate tax benefits for government.
The concerns over the issue of taxing e-transactions have led to a number of tax policy reforms in
several countries such as USA, Canada, The EU, South Africa, Australia, China (Ikpaisong, n.d.) In Nigeria, the
Federal Inland Revenue Service (FIRS) is in charge of assessing, collecting and accounting for taxes and other
revenues accruing to the Government of the federation (Simeon, Simeon and Roberts, 2017). One of such taxes
administered by the FIRS in Nigeria is the VAT. VAT in Nigeria is backed up by the Value Added Tax Act
1993 and it has recently been proposed that from 2020, the VAT rate would be increased from age-old 5% to a
new rate of 7.5% as a way of enhancing government revenue from Vatable goods and services to supplement the

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 The Implementation Of Value Added Tax (Vat) On E-Transactions In Nigeria: Issues …

proceeds from oil (Abiodun, 2019). Though the proposal has been met with mixed feelings and reactions, it is
expected that after taking away the costs of collection, the government would still be left with a reasonable
increment in VAT revenue.
However, it has been noted that huge volumes of e-transactions continue to escape VAT annually in
Nigeria. It is in view of this, that the FIRS has proposed that with effect from February 2020, banks is
mandated on behalf of government to charge VAT on local and foreign online transactions (Chiedozie, 2019).
Evidently and as earlier highlighted, the revenue benefits of implementing this VAT on e-transactions are quite
enticing. However, the pertinent considerations bother around the likely issues and challenges of implementing
this policy in Nigeria. The concerns heighten given the fact that though several efforts have been made to
reposition the Nigerian tax system, the system is still faced with a wide range of challenges which limits the
effectiveness of tax assessment and collection in the country (Simeon, Simeon & Roberts, 2017). A number of
very useful and significantly related researches have been carried out in the past. However, most of these
researches found were non-empirical, desk-based opinion papers. This study is therefore driven by the paucity
of empirical studies on the implications of implementing VAT on e-transactions in Nigeria.
In view of these, the main objective of this paper is to empirically examine the issues and challenges of
implementing VAT on e-transactions in Nigeria. The specific objectives are:
(i) To ascertain the challenges of implementing VAT on e-transactions in Nigeria
(ii) To assess the effect of VAT implementation on e-transactions in Nigeria

In order to achieve these objectives, the study is guided by the following relevant research questions:
(i) What are the challenges of implementing VAT on e-transactions in Nigeria?
(ii) How would the implementation of VAT affect e-transactions in Nigeria?

The study is significant given the fact that taxes (including VAT) serve as a more predictable and
sustainable source of government revenue; as such a proper appreciation of the impending issues and challenges
of the proposed implementation of VAT on e-transactions would enhance government preparedness in order to
ensure effective and efficient implementation of the policy for optimal economic benefits. Also the empirical
perspective that the study provides would be quite useful to future researchers on the subject matter.

II. LITERATURE REVIEW

2.1 Conceptual Review
This section contains the review of the concepts, theories and the empirical literature that are relevant
to this study.

2.1.1 The Concept of E-transactions

The term “transaction” is often used to describe the transfer of money or goods involving people,
businesses, accounts or applications. Transactions are bound by well- defined business processes or contractual
starting and ending points (INETCO, 2019). According OECD Expert Group on Defining and Measuring E-
Commerce (2000), electronic transaction (e-transaction) is defined as the sale or purchase of goods or services,
whether between businesses, households, individuals, governments, and other public or private organizations,
computer-mediated networks. The goods and services are ordered over those networks, but the payment and the
ultimate delivery of the good or service may be conducted on or offline. In line with this definition, e-
transactions, in this study is used to refer to business activities between parties that involve the order, payment
for or receipt of value for goods or services via an online electronic medium.

2.1.2 VAT: An Overview of its Essence in Nigeria

VAT originated in the developed countries of Europe and Latin American. However, over the past 25
years VAT has been adopted by a vast number of developing countries. A recent IMF study concludes that VAT
is an effective method to raise revenues and modernize the overall tax system – but it requires that the tax be
well designed and implemented. The rapid rise of value added tax was the most dramatic and probably most
important development of taxation in the later part of the twentieth century, VAT was barely known outside
theoretical discussions. It is a key component of the tax system in over 120 countries, raising about one-fourth
of the world's tax revenue (Ebril, 2002).
According to Onuwuchekwa and Suleman (2014), VAT is a consumption tax (of a good or service)
levied at each stage of the consumption (of a good or service) and borne by the final consumer of the product or
service. It is a tax levied on sales or commodities at every stage of production. Its defining feature is that it
credits taxes paid by the enterprise on their material inputs against the taxes they must levy on their sales.
Unlike retail sales tax under which tax is collected only at the point of sales to the final consumer, revenue is

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 The Implementation Of Value Added Tax (Vat) On E-Transactions In Nigeria: Issues …

collected throughout the production process. The VAT is chargeable on economic operations including import
except those exempted as per the provision of the enabling decrees.
According to the Federal Inland Revenue Service (FIRS), VAT originated in Nigeria as a result of the
report of a study group set up by the federal government in 1991 to review the entire tax system. VAT
implementation in Nigeria became imperative in Nigeria business because of the nature of tax structure which
according to Anyanwu (1997) was complex, inelastic, inefficient, inequitable and unfair. Moreover, the country
depends on import and export duties while there were no opportunities to generate revenue through
consumption-based tax such a VAT.
In Nigeria, VAT attracts a flat rate of 5% and initially covered items of good and 24 items of service.
The tax is collected on behalf of the government by businesses and organizations, which have registered with
the Federal Inland Revenue Services (FIRS) for VAT service. These businesses and organizations can claim
credit for this tax (called input tax) when goods are sold and services rendered. VAT returns also have to be
rendered monthly to the FIRS by these registered agents. The 5% VAT is also called the output tax less the input
tax and is equivalent to the VAT paid by the final consumer of the product that would be collected by the
government. It has however been recently proposed that from 2020, the VAT rate would be increased from age-
old 5% to a new rate of 7.5% (Abiodun, 2019).
Nwezeaku (2005) noted that the implementation of VAT is intended to eliminate or minimize the
distortions to private savings and investment resulting from taxation by improving transparency and
predictability; as well as shifting its incidence towards expenditure rather income. Also, it is meant to enhance
greater fiscal flexibility in order to develop expenditure that can be maintained in the tax fluctuation in oil
revenue by broadening the statutory base for taxation and its effective coverage. It is also expected that with
VAT, the burden of taxation would be more evenly distributed across different goods and services through a
broader coverage to avoid multiple taxation. Another objective of VAT implementation is to consolidate and
modernize the tax system in order to provide the base for strong revenue growth and flexible management in the
economy. VAT tends to shift taxation towards consumption rather than income. Thus VAT helps to develop an
approach to taxing luxury on consumption relatively higher and minimizing the impact on essential goods and
services consumed by the low-income group.

2.1.3 The Envisaged Constraints to VAT Implementation on E-transactions in Nigeria

The digital economy is fast becoming the most innovative and widest reaching economy in the world.
In 2018, the Nigeria Investment Promotion Commission explained that the Nigeria digital economy is expected
to generate $88 billion and create three million new jobs by the end of 2021 (Isiandinso and Omoju, 2019).
However, Nigerian may find that it is unable to effectively tax the huge income that the digital economy would
generate unless it addresses a number pertinent constraint which poses a limitation to its prospects of
implementing VAT on e-transactions.

(i) Out-of-date Tax Legislations: Nigeria is transforming itself in the information and computer
technology, its laws are yet to march apace with this transition. To succeed in taxing e- transactions, not only
should the laws be applicable to innovations in e-commerce, they should also be on par with and sensitive to the
legal development in electronic transactions and consumer protection (Ikeh, 2014). Some of these transactions
occur and income earned by the parties involved but the tax authorities and its agencies are oblivious that the
transactions are taking place. The way the tax provisions are drafted could equally be improved upon to
eliminate the technicalities in certain areas. Federal Ministry of Finance (2016) agrees that the tax legal
framework therefore needs to be amended or revised to reflect the realities of modern transactions establish a
basis of taxation that arrests leakages.

(ii) Poor Implementation of Existing Laws: Under current Nigerian law, taxation is enforced by the three
(3) tiers of government, i.e. federal, state, and local governments, with each having its sphere and modalities
clearly spelt out in the applicable tax legislations (Bassey, 2013). However, deliberately or inadvertently, it has
been indicated that these laws are not obeyed or implemented. This trend may limit the success of VAT on e-
transactions.

(iii) Corruption: This is one problem which traverses virtually every sector of the country is more likely
than not, to hamper the prospects of implementing VAT on e-transactions.

(iv) Infrastructural Lapses: In view of the above issues where trade and commerce exist online or
through the internet, the profits derived from this e-commerce are not captured in our income talk less its
taxation because the enabling infrastructure is not in place. Although Nigerian tax laws have gone series of
amendments but we are largely dependent on the physical approach to transacting business. Therefore, unless

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 The Implementation Of Value Added Tax (Vat) On E-Transactions In Nigeria: Issues …

the origin and or destination of a transaction is Nigeria, there is usually a challenge in ascertaining when to tax
and how much to tax the individual or the companies in relation to the transaction made under the e-trade or e-
commerce. This, according to Andersen (2019), could limit the success of VAT on E-transactions because given
that digital transactions require little or no presence of the transacting parties, the income from the transaction
may not be captured in the jurisdiction where the income is derived.

(v) Technological Complexity of E-transaction: The trend with technology, new models of commercial
interaction 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 (Ikeh, 2014). 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. It generally
refers to commercial activities based upon the processing and transacting of digitized data, including text, sound
and visual images, which ultimately results to an ex-change of value across telecommunications networks. In
fact, some goods and services are bought and sold virtually online without any physical or tangible equivalent
(Walter, 2001).

(vi) Problem of Double taxation: Banks being mandated to impose VAT on online transactions could
result in a number of unintended effects as it appears to impose additional obligations of monitoring and
tracking various e-commerce transactions on banks. This could also expose the banks to tax audit risks, as the
FIRS would seek to ensure compliance and proper remitting of the VAT imposed. More so, collection of VAT
on such transactions by banks could amount to double taxation where the supplier of the good/service has
already charged and remitted VAT on same transactions given that the VAT Act imposes the obligation to
charge and remit VAT on the supplier of vatable goods/services (Anderson Tax, 2019).
Another critical issue is how the banks are expected to determine vatable transactions and the mode of
calculating and imposing VAT on the goods and services supplied online. The law allows a supplier of goods
and services to make the necessary adjustments between the output VAT and input VAT before computing the
VAT on the product supplied. As such, it would be absurd to mandate banks to make arbitrary deductions on the
basis of output VAT (Anderson Tax, 2019).

2.1.4 The Reactionary Effect of VAT Implementation on E-transactions in Nigeria

The implementation of VAT on e-transaction in Nigeria are intended policy changes that are made with
a view to attracting fiscal and other socio-economic benefits to the country. Realistically, changes like this are
inevitable because taxes introduced some decades ago cannot always achieve macro objectives today except
they are changed in line with current economic realities. However, it is an inarguable reality that the reactionary
effect of VAT implementation on e-transaction is inevitable and worth considering if the government is going to
be people-oriented government that wants to line up to the expectation of their citizen. The effect that
implementing VAT would most likely have on E-transactions business in Nigeria include:

(i) Negative Effect on Other Government Policy: People may be discouraged from engaging in e-
transactions and as such the effectiveness of the cashless policy of the Federal Government which thrives on e-
transactions may be affected.

(ii) Increased Cost of administration: VAT implementation on e-transaction comes with an unavoidable
set of administrative and implementation costs. In order to make sure you are collecting VAT correctly,
complying with the new laws, and able to do your VAT reporting, you will need to update information
technology and internal systems, train employees in VAT processes.

(iii) Tax Evasion and Resistance: Taxation in Nigeria has encountered a number of problems which could
re-surface as a reactionary effect of VAT implementation on e-transactions, one of these challenges is the
habitual resistance to taxation generally while some are purely administrative. The implementation of the tax
may be followed up by unscrupulous technical ingenuity of some of the e-transaction operators to circumvent
and evade the taxes.

(iv) Increased Tax Burden for Consumers: Although small business in particular has the upfront
implementation costs to consider, it is the consumer who is ultimately going to bite hardest by the new VAT
laws, Although, the proceed of collecting and remitting VAT has with the company. Ultimately, it will end up
being charged to the customers via sales demands.

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 The Implementation Of Value Added Tax (Vat) On E-Transactions In Nigeria: Issues …

(v) Decline in Consumption: VAT implementation on e-transaction is important but there is the
possibility that the tax may cause consumers to cut consumption of certain commodities in order to reduce their
indirect tax burden, hence affecting the revenue and financial sustainability of the producers and sellers of such
commodities.

(vi) Changes to business structure: Aside from having a significant cash-flow impact in some
companies, VAT implementation on e-transaction will be charged at each stage of production, and distribution,
which can be problematic.

(vii) Uncertainty about the future: VAT rates are not set on stone. The rate might rise in future. For
instance, it has recently been announced that from 2020, the VAT rate would be increased from age-old 5% to a
new rate of 7.5% as a way of enhancing government revenue (Abiodun, 2019). This prospects may create
uncertainty for both business and consumers, who would naturally be worried about increase costs being passed
on to them.

2.2 Empirical Review

Most studies that were significantly related and useful to the focus of this study were non-empirical,
desk-based papers. The few empirical studies found and deemed to be somewhat related to VAT generally, are
reviewed in this section.
Izedonmi and Okunbor (2014) used seventeen (17) year time series data to assess the role of value
added tax on the economic growth of Nigeria. Using both simple regression analysis and descriptive statistical
methods, they found that VAT revenues and total revenues accounted for as much as 92 percent significant
variations in GDP in Nigeria. They also found a positive and insignificant correlation between VAT revenue and
GDP. Onwuchekwa and Suleman (2014), on the other hand examined the effects of value added tax on the
economic growth of Nigeria. The study made use of the ordinary least square method in analyzing data for a
period of 20 years. The result show that VAT significantly contributes to total revenue of government and to the
economic growth of Nigeria.
Andrikopoulos Brox and Georgakopoulos.(1993) examined the short run effects of the VAT on
consumption patterns in Greece. The aim of the study was to evaluate the influence of the VAT on individual
commodity prices, consumer price index, shares and the allocation patterns of total consumption expenditures
among groups of commodities. By making use of a time series data involving thirteen commodity groups in
Greece for the period 1958-1986 and employing the full information maximum likelihood (FIML) approach to
assess and test static almost ideal demand syste m (AIDS) model, the findings revealed that VAT had both a
negative and positive effect on commodity prices. This based on the finding that consumer price index rose by
4.7 percent above the rate that was before the presence of VAT. Also, as a result of VAT, there were changes in
the distribution of total consumption expenditure between groups of goods and services that were studied.
Suntoro and Tjen (2017) conducted a study on the challenges of implementing VAT on E-Commerce
transactions in Indonesia. 216 account representatives in Kantor Pelayanan Pajak Pratama in DKI Jakarta
constituted the sample of the study. Primary data were collected through interviews and the administration of
questionnaire. Frequency, simple percentages and graphs were used to analyse the data. Based on the results, it
was concluded that the challenges of implementing VAT on e-commerce transactions in Indonesia are
identifying taxpayers engaged in e-commerce, determining taxpayer’s jurisdiction, incompleteness of records,
identifying electronic and physical products, lack of audit trails, and lack of system controls.

2.3 Theoretical Review

The expediency theory is a relevant theoretical basis for this study. The theory which is attributed to
Jean Baptiste Colbert emphasizes that revenue maximization and other socio-economic objectives should not be
the only or overriding consideration motivating tax policy specifications or reforms, rather every tax proposal
must pass the test of practicability (Eze, Iorwuese & Abba, 2016). This means that a tax proposal may assure
enticing revenue benefits for government whereas in practical terms its effective implementation is not feasible.
The strength of this theory lies in the fact that although taxation is a veritable and beneficial economic tool, a tax
that cannot be effectively levied and collected is practically useless (Chigbu, Akujuobi & Appah, 2012). There
is no doubt that the government’s plan to tax e-transactions would definitely be beneficial to Nigeria. However,
the pertinent questions bother around the practicability in terms of cost-benefit analysis of implementing this
policy. There is need to pre-evaluate the issues and challenges that the country will have to grapple with in the
course of implementing this policy and how the implementation of this policy would affect e-transactions
business in Nigeria. This will ensure that relevant facilitating machineries are put in place to ensure the effective
implementation of the policy.

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 The Implementation Of Value Added Tax (Vat) On E-Transactions In Nigeria: Issues …

III. METHODOLOGY
The focus of the study is exploratory in nature. Thus s survey research design is adopted for the study.
This design is deemed appropriate for the study, since it would facilitate a quicker and systematic collection of
reliable primary data for the exploratory study. The population of the study consists of FIRS tax officers,
researchers, tax practitioners and e-transaction business operators/clients in Nigeria. From this population, one
hundred and twenty-five (125) respondents are randomly selected from using convenience technique. These 125
respondents constitute the study sample. The study employs basically primary data sourced through a structured
four point Likert scale questionnaire which was distributed to the study respondents to elicit responses that
would facilitates answers to the study research questions. The questions in the questionnaire were structured to
address the issues of focus highlighted in the study objectives. The data collected was analyzed using the
descriptive statistic such as simple percentages, averages, weight and ranking.

IV. DATA ANALYSIS AND DISCUSSION OF FINDINGS

Table 4.1: Analysis of Respondents
FIRS Tax Tax E- business Not Total %
tax Researchers Practitioners operator/client specified
Officers
Total 12 27 28 34 16 117
returned
% Returned 10.3% 23.1% 23.9% 29.1% 13.7% 100%
Source: Researchers’ Analysis (2020)

Table 4.1 indicates that out of the 125 copies of questionnaire administered for the study, 117 were completed
and returned giving a 93.6% response rate. In respect of their occupation, 13.7% did not indicate, 10.3% of the
117 respondents were FIRS tax officers, 23.1% were researchers, 23.9% were tax practitioners while those
operators and clients of E-business constituted the remaining 29.1% of the respondents. The summary of
responses to the questions in the questionnaire is presented and analyzed in Table 4.2 and 4.3

Table 4.2: Analysis of Questionnaire Responses on the Challenges of implementing VAT on E-

transactions in Nigeria
S/N Questionnaire Statement Scores Average Weight Ranking

1 The need to timely modify and update tax legislations in Nigeria 371 3.17 0.634
to take care of the implementation of VAT on e-transactions 2nd
would definitely pose some limitation to the policy.
2 The observed poor implementation of laws in Nigeria would 375 3.21 0.642
really affect the implementation of VAT on e-transactions in 1st
Nigeria
3 The necessary infrastructure required to ensure effectiveness in 350 2.99 0.598
taxing e-transactions in Nigeria is currently not in place and this 5th
will be a major challenge
4 The problem of corruption that appears inherent in virtually 353 3.02 0.604
every sector of Nigeria would pose a setback to the success of 4th
taxing e-transactions.
5 The technical capacity to cope with the complex and dynamic 355 3.03 0.606
technology that is involved in e-transactions is a huge challenge 3rd
to the implementation of VAT on e-transactions in Nigeria.

Source: Researchers’ Analysis (2020)

The result of the analysis shows that the observed trend of poor implementation of laws in Nigeria is
the greatest challenge that would really affect the implementation of VAT on e-transactions in Nigeria with
64.2% in the affirmative.
Next in rank with 63.4% is the fact that the need to timely modify and update tax legislations in Nigeria
to take care of the implementation of VAT on e-transactions would definitely pose some limitation to the policy.
This finding is line with the views of Anyanwu (1997) as well as Simeon, Simeon and Roberts (2017). It is also
revealed that the technical capacity to cope with the complex and dynamic technology that is involved in e-
transactions is the third most envisaged challenge to the implementation of VAT on e-transactions in Nigeria
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 The Implementation Of Value Added Tax (Vat) On E-Transactions In Nigeria: Issues …

(60.6%). Also, 60.4% believe that the preponderant corruption existing in the country pose a setback to the
success of taxing e-transactions. The least ranked challenge identified is the challenge of putting in place the
necessary infrastructure required to ensure effectiveness in taxing e-transactions (59.8%). This corroborates the
point made by Andersen (2019).

Table 4.3: Analysis of Questionnaire Responses on the Effect of VAT Implementation on

E-transactions in Nigeria
S/N Questionnaire Statement Score Average Weight Ranking

1 People may be discouraged from engaging in e-transactions and 371 3.17 0.634
as such the effectiveness of the cashless policy of the Federal
Government which thrives through e-transactions may be
negatively affected. 1st
2 VAT on E-transactions might increase unscrupulous activities 361 3.08 0.616
by e-transactions businesses, which would increase the already 3rd
existing problem of tax evasion and avoidance.
3 It might increase economic difficulties for citizens because the 361 3.08 0.616
additional cost of doing e-transactions resulting from the VAT, 3rd
will be ultimately borne by the clients.
4 The VAT on e-transactions may induce consumers to cut down 359 3.07 0.614
consumption of applicable commodities or services which may
result in revenue decline for the business operators. 4th
5 The classification of items under VAT implementation on e- 361 3.08 0.616
transactions would involve a rigorous process of classifying
items which could be confusing and problematic for the 3rd
operators of the business.
6 The implementation of VAT on e-transactions would increase 0.618
business uncertainty about the future for e-transaction business 362 3.09 2nd
operators.

Source: Researchers’ Analysis (2020)

The result of the analysis suggests that the greatest effect that full implementation of VAT in Nigeria
may have is that it may indirectly hamper the cashless policy of government because people would be
discouraged from engaging in e-transaction related activities, in order to avoid the VAT (63.4%). The second
ranked effect (61.8%) is that the full implementation of VAT on e-transactions may create uncertainty for both
business and consumers, who would naturally be worried about increase costs being passed on to them. This
would particularly arise because of the probability of increase in the VAT rate as is indicated by Abiodun
(2019).
The other co-ranked identified challenges are that implementing VAT on e-transactions might increase
unscrupulous activities by e-transactions businesses, which would increase the already existing problem of tax
evasion and avoidance (61.6%). Also, in line with findings of Andrikopoulos, Brox and Georgakopoulos (1993),
61.6% respondents affirmed that VAT on e-transactions might increase economic difficulties for citizens
because the additional cost of doing e-transactions resulting from the VAT, would be ultimately borne by the
clients. Also a rigorous process of classifying items would be required which could actually create problem or
confusion for the operators of the business (61.6%)

V. CONCLUSIONS AND RECOMMENDATIONS

The study was on the issues and challenges of implementing VAT on e-transactions in Nigeria. The
gleanings from extant literature as established in the course of this study highlights the fact that as beneficial as
the full implementation of VAT on E-transaction promises to be, there are issues and challenges which must not
be overlooked. This reality and implications of this fact has been reiterated and corroborated by the findings of
this study as discussed in the preceding section.
Based on the findings of this study it is concluded that poor implementation of existing tax laws as well
as the need to modify and update tax laws are the major challenges of implementing VAT on e-transactions in
Nigeria. Other issues to be considered are technical capacity, corruption and infrastructural requirement. In
respect of the reactionary effect of this policy, it is concluded that implementation of VAT on e-transaction

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 The Implementation Of Value Added Tax (Vat) On E-Transactions In Nigeria: Issues …

would have an indirect effect on cashless policy. It would also increase business uncertainty as well as heighten
economic difficulties for citizens. In view of these findings, it is recommended that:
(i) Government should make new tax laws, update existing laws so as to provide a legal framework for e-
transaction VAT policy. It should, more importantly, heighten its commitment to ensuring proper
implementation of those laws.
(ii) Proactive measures should be pursued to ensure enhanced technical capacity needed for the success of the
VAT implementation
(iii) Adequate taxpayer education on the modalities and of the e-transactions VAT should be spearheaded and
sustained. This would enhance compliance.
(iv) A system of incentive should be designed as a cushion for those who comply with the VAT. This would
encourage more compliance and discourage any tendency to unscrupulously evade or avoid the taxes.
(v) The fight against corruption should be intensified with sincerity of purpose to serve as deterrent to others
and enhance public confidence in government intentions on implementing this policy.

REFERENCES
[1]. Abiodun, A. (2019). VAT: What you need to know about proposed increase from 5%-7.5%. Sept 18.
https: // thenationonlineng.net/vat-what –you- need -to –know- about- proposed- increase- from- 5-7-5
[2]. ACCA (2016). Market change is faster than ever- is your finance function in the race.
https://www.accaglobal.com/in/en/professionional-insights/technology/market-change-is faster-than-
ever.html
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iii+pp1-46

*Corresponding Author: 1Raphael S. Etim

1
Department Of Accounting, University Of Uyo, Uyo P.M.B 1017, Uyo,
Akwa Ibom State, Nigeria Tel: +2348035048148

*Corresponding Author: RAPHAEL S. ETIM www.aijbm.com 9 | Page