Nigeria’s New Revenue Frontier: VAT on Digital Payments Takes Center Stage

In a major fiscal overhaul, the Nigerian government is placing a significant bet on the digital economy to boost its non-oil revenue. The new push focuses on rigorously enforcing and expanding Value Added Tax (VAT) compliance on digital payments, Software as a Service (SaaS), and various online services.

This strategic move, spearheaded by the Federal Inland Revenue Service (FIRS), aims to capture a fast-growing, previously under-taxed sector, ensuring both local and foreign digital service providers contribute fairly to the nation’s coffers.

Closing the Digital Tax Gap

The rapid growth of Nigeria’s tech and fintech sectors has created a vast, largely untaxed revenue base. The new reforms are designed to close this gap by mandating strict VAT compliance across the digital space.

• Expanded Scope: The FIRS is enforcing the 7.5% VAT on digital services, which now explicitly includes:
• SaaS subscriptions and digital tools.
• Online services and content streaming platforms (like Netflix and Meta).
• Cross-border transactions involving digital services supplied to Nigerian customers.
• Targeting Non-Resident Companies (NRCs): Foreign companies with a Significant Economic Presence (SEP) in Nigeria must now register for VAT and remit the tax monthly.

This measure is crucial, as foreign sources from digital services already accounted for a substantial portion of all VAT collected in the second quarter of 2025.

• Digital Fiscalization: To simplify and strengthen enforcement, the FIRS is implementing systems like e-invoicing and real-time VAT reporting. This digital approach aims to minimize leakages and improve the auditability of VAT transactions.

“The digital economy has grown rapidly while remaining largely untaxed; this reform closes that gap and captures a fast-expanding revenue base without raising rates on traditional sectors,” noted one financial consultant.

The Two-Pronged Digital Revenue Strategy
The government’s plan to harness digital transactions for revenue is two-fold, encompassing both the VAT on digital consumption and a separate charge on transfers:

1. VAT on Digital Services: This is a consumption tax (7.5%) levied on the supply of taxable digital goods and services, primarily targeting the large platforms and software providers.
2. Electronic Money Transfer Levy (EMTL): This is a separate charge of ₦50 on digital money transfers of ₦10,000 or more. Initially applied primarily to banks, the EMTL has been expanded to include transactions made through popular fintech apps (like Opay and Palmpay) to reflect the shift towards mobile digital transfers.

The government is targeting to raise significant figures from these digital taxes, with the EMTL alone aiming to raise hundreds of billions of Naira by 2027.

The Economic Impact and Consumer Concerns

While the new tax regime promises to broaden the tax base and provide much-needed funding for infrastructure and development, it raises important considerations for businesses and consumers:

• Increased Compliance Burden: Nigerian businesses and non-resident companies must quickly adapt to the new digital compliance framework, including potential mandates for using approved e-invoicing systems.
• Potential Price Hike: For consumers, the mandatory VAT on digital services and the EMTL on transfers could lead to an increase in the overall cost of using digital platforms and conducting frequent electronic transactions.

This has sparked concerns that it could inadvertently slow down the country’s push towards greater financial inclusion and a cashless economy.

Ultimately, the success of this strategy hinges on the FIRS’s ability to effectively implement the digital tax framework transparently and efficiently, converting the potential of the digital economy into sustainable public revenue.