Accounting Project Topics

The Impact of Online Value-Added Tax on E-Commerce in Nigeria

The Impact of Online Value-Added Tax on E-Commerce in Nigeria

The Impact of Online Value-Added Tax on E-Commerce in Nigeria PDF

Chapter One


The following are the objectives of the study:

  1. To know the impact of value added tax on E-commerce.




Our focus in this chapter is to critically examine relevant literatures that would assist in explaining the research problem and furthermore recognize the efforts of scholars who had previously contributed immensely to similar research. The chapter intends to deepen the understanding of the study and close the perceived gaps.

Precisely, the chapter will be considered in three sub-headings:

  • Conceptual Framework
  • Theoretical Framework
  • Empirical Review


Definition of Taxation

Tax has been defined in many ways by different authors. Anyanwu (2007) defined tax as “compulsory transfer or payment of money (or occasionally of goods and services) from private individuals, institutions or and services) from private individuals, institutions or groups to the government. It may be levied upon wealth or income or in the form of surcharge on price.

According to Okpe (2008) “tax is the transfer of resources and income from the private sector to the public sector in order to achieve some of the nation’s economic and social goals, maybe in the form of provision of additional government basic services particularly in education, public health, transportation, capital formation and in the provision of facilities.

Anyanwaokoro (2004) defined tax as “a compulsory payment imposed by the government on individuals and corporate bodies in the governed area for which no direct goods or services are given in exchange of the payment made”.

Adebao (2009) also defined tax as “a compulsory levy imposed by the government on individuals and business organizations. It is a payment in return for which no direct and specific “quid pro quo” is offered by the government and indirect benefit to different individual taxpayers cannot be determined. From the above definitions Okwo (2011) summarized tax as a compulsory payment made by individuals and corporate bodies to the government for financing government expenditure or for general purpose of government aimed at improving the taxpayers welfare and in which both the taxpayer and the public at large benefit. There are three elements of taxation. These are;

  • The tax base
  • The tax rate
  • The tax yield

The tax base is the object being taxed. Examples of tax based are income, profit and property.

The tax rate is the proportion of the value of the tax based that is paid as tax.

The tax yield is the actual amount accrued to the government in tax.

Overview of Value Added Tax (VAT)

VAT is a tax on consumption; the more you buy the more tax you pay. It is also a neutral tax on businesses in that it does not represent a real cost to anyone but the end consumer. Everybody pays tax to the Government whenever they purchase goods or services. This tax is collected for the government by the supplier of those goods and services. VAT revenue has become a significant source of government revenue in Nigeria. Therefore, the primary objective of fiscal policy is to raise more revenue through value added tax (Ademola, 2009). The tax authorities have been guided by the need to design equitable and efficient VAT system capable of complementing government expenditure and, thus, reduce recourse to public borrowing. VAT rate in Nigeria has been determined in a way that minimizes disincentive effects on economic activities. The effects of low tax effort in Nigerian have been strengthened by the value added tax system.

The concept of value added as given by Ajibola (2005) refers to the additional value of a commodity over the cost of commodities used to produce it from the previous stage of production. In national accounts used in macroeconomics, it refers to the contribution of the factors of production, i.e., land, labour, and capital goods, to raising the value of a product and corresponds to the incomes received by the owners of these factors. It is this value added that VAT is levied upon. Consequently, value added tax, or goods and services tax is tax on exchanges at different points. It differs from sales because a sales tax is levied on total value of the exchange. Personal end consumers of products and services cannot recover VAT on purchases, but businesses are able to recover VAT on the materials and services that they buy to make further supplies or services directly or indirectly sold to end-users. In this way, the total tax levied at each stage in the economic chain of supply is a constant proportion of the value added by a business to its products, and most of the cost of collecting the tax is borne by business, rather than by the state.





The Federal Inland Revenue Service (FIRS) is the agency established in in 1943 that is responsible for assessing, collecting and accounting for tax and other revenues accruing to the Federal Government of Nigeria. FIRS is saddled with the following responsibilities in Nigeria:

  • The timely provision and publication of accurate data and annual reports to the Federal Government of Nigeria and other stakeholders to inform national economic planning, academic research, tax policy and development legislation.
  • The timely provision of tax advisory services, rulings, guidance notes and clarifications on request and to the public in general
  • The regular investigation, enforcement and prosecution of tax defaulters as provided by the law
  • The issuance of “Taxpayer Identification Number” (TIN) at no cost to the taxpayer
  • The prompt processing of payment claims and tax refund requests received, within stated timeframes
  • Undertake appropriate actions to reduce the arrears position of the service and minimize debt profile
  • The regular and accurate reconciliation of taxes received into Federation, Consolidated and VAT the case may be
  • Provision of tax education & information to taxpayers through diverse channels and languages


Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled.


According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitute of individuals or elements that are homogeneous in description.

This study was carried out to examine the impact of online Value Added Tax (VAT) on e-commerce in Nigeria. Staff of Federal Inland Revenue Service Lagos, constitute the population of this study.



Table 4.1: Demographic data of respondents





In this study, our focus was to examine the impact of online Value Added Tax on e-commerce in Nigeria. The study specifically was aimed at ascertaining if online Value Added Tax has any impact on e-commerce in Nigeria.

The study adopted the survey research design and randomly enrolled participants in the study. A total of 32 responses were validated from the enrolled participants where all respondent are active workers in FIRS in Lagos State.

The findings revealed that online Value Added Tax has impact on e-commerce in Nigeria.


Based on the responses obtained, the researcher proffers the following recommendations:

(i) There should be Public-Private-Partnerships between government and firms in developing the infrastructures required for improving the current level and depth of Internet and telephone usage.

(ii) There should be consumer education in order to improve awareness on the benefits of e-commerce transactions.

(iii) The OECD model for the taxation of e-commerce should be adopted.

(iv) Efforts should be made to set up a VAT intermediation body. This body ought to be relevant for the digital world, utilize Internet Service Providers (ISPs) as a responsible authority for the collection, calculation and payment of electronic tax This is expected to put in place a uniform and fair system, which will reduce the burden imposed on retailers as well as preserve the sovereignty of the countries in case of cross-border e-commerce transactions.

(v) In order to be able to manage the problems posed by e-commerce Tax jurisdictions need to be globalized; wide scale agreements between trading countries and common tax policies should also be drawn.

(vii)The international institutions like OECD should evolve more equitable tenets for cross-border ecommerce transactions so that all countries can enjoy equitable distribution and tax revenue Nigeria is advised to take the following additional steps:-

(i)Since tax on e-commerce is an extension of the current tax laws, the Nigerian government should evolve an up- to- date and comprehensive legal framework as well as infrastructure for e-commerce so as to take advantage of her huge market.

(ii) In addressing the tax implications of e-commerce, Nigeria should consider the need to shift her taxing strategies drastically from the domestic to the international level, since e-commerce, via the internet, has no borders. (iii)Nigeria should anticipate bilateral or multilateral disputes in respect of trade agreements or tax jurisdiction as they will become virtual and more difficult to settle. Also, she has to expect that, over time, many trading entities, especially multi-national companies, will be inclined to operating as virtual organizations with little or no physical presence in any particular taxing jurisdiction see Lao-Araya (2003).


  • Adedeji, A (2006). Nigeria Federal Finance: Its Development, Problems  and Prospects. London: PAN Books
  • Ademola, A. (2009) Economics: A Simplified Approach. Vol.2; Lagos: Africana International Publishing Ltd.
  • Aderibigbe, K. & Peter, O. (2014) Principles and Practices of Taxation in Nigeria, Jos: Eiwa Ventures Nigeria limited.
  • Ajibola, R. (2005). Public Finance: Principles and Practice. Lagos: B Print Publishing.
  • Aluko, A.S. (2009). “Financing Economic Development in Nigeria”, Nigerian Journal of Economy, 3 (1), 23 – 29.
  • Anyafo, A.M.O. (2007). Government and Public Sector Accounting; Enugu Snaap Press Nigeria Ltd.
  • Anyanwaokoro, M. (2004).Element of Public Finance. Enugu: Hosanna Publications.
  • Anyanwu, J.C., (2011). Nigerian Public Finance. Onitsha: Joanne Educational Publishers.
  • Bhartia, H. L. (2009). PublicFinance 14th Ed., New Delhi: Vikas Publishing House.
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