AN ANALYSIS OF REGULATORY REGIMES FOR THE TAXATION OF ELECTRONIC COMMERCE IN NIGERIA

CHAPTER ONE

GENERAL INTRODUCTION

1.1         Background to the Study

From the down of history, co-existence among human beings has always been shaped and reshaped by certain events. These range from natural events and most of the times, events brought about by man in a quest for better life.

Man‘s quest for a better life has brought about Information and Communication Technology (ICT) which has greatly affected all aspects of human endeavours. It is a regime that has shaped various aspect of human behaviour in way that is unprecedented.

The breakthrough in science which led to Information and Communication Technology (ICT) has led to a world whereby business transactions can be carried out without the parties involved having to come together physically for negotiation, performance and payment for the goods bought or the services rendered. This of course is a system that was not contemplated at the making of our law on business transaction and taxation in Nigeria which has become a challenge to the government on revenue generation.

There is hardly any government today that does not rely on taxation measures not only to provide the much needed revenue for socio-economic development but also to reduce the inequalities in wealth distribution in the society¹. Thus the need to finance and sustain government and its machinery in the discharge of it responsibilities has been the traditional connotation of taxation.² In Nigeria like many other countries, the proceeds from taxation which includes taxation of income profits, capital gains, property, entertainment, merriment, sales or purchase of goods and services, stamp duties, excise duties, export duties etcetera constitute major sources of revenue for the government.³ It is therefore means that we are in the era of tax consciousness among the various governments of the Federations for each government from the state to Federal government is conscious of the tax it is entitled to under the law.⁵

Tax collection and administration in Nigeria in this digital age poses challenges to both practitioners and administrators. This is not unconnected with the facts that billions of transactions are carried out monthly through internet or to put properly transaction in the cyberspace without the knowledge of the tax authorities.

However, it is most unfortunate that electronic commerce was not in contemplation at the time making of tax statutes which poses challenges to the tax authorities in Nigeria.

It is a common knowledge that the world wide adoption of Information and Communication Technology (ICT) has immensely altered and enhanced human interaction and our way of life for the past three decades.⁶ The world‘s transition to information age has indeed changed the mode and increased the pace of global socio-cultural and economic activities through the tool of Information and Communication Technology (ICT) and adoption of electronic commerce.⁷ This adoption of e-commerce is in no doubt poses new challenges to the practitioners and tax authorities in Nigeria. It cannot be gainsaid that a lot of challenges are facing legal regulations and taxation of electronic commerce in Nigeria. The various tax authorities in Nigeria⁹ are grappling with the challenges of tax collection on electronic commerce. The Tax legislations in Nigeria have not been amended to accommodate the trend of transaction brought by the Information and Communication Technology (ICT). One of such challenges posed by application of ICT to commerce or e-transactions is tracking transaction for the purposes of taxation.¹⁰

The drive towards growing non-oil revenue (through fiscal optimization) and eliminating leakages are not mutually exclusive objectives.¹¹ Thus, the process of diversifying the revenue base on the economy can only be further complemented by the choices the Federation makes to arrest leakages from the digital economy.¹² The challenges with e-commerce is numerous on the ground that the need for physical presence is removed or at best diminished and this creates the problem of how to determine the right to tax profits that are derived from electronic commerce. Then a further question is whether a website or a server owned or used by a foreign company can create a fixed place of business and hence a taxable transaction? Electronic commerce is still in its infancy. And there is dearth of direct legislations on e-commerce and their virtual natures have made it difficult for the government to establish the real and acceptable mechanism of taxing e-commerce.Therefore there is a need for a research in this area in order to know the effect of e-commerce on taxation of taxable incomes as provided by our laws.