The Legal Framework for Taxation of Digital Goods and Services in Nigeria.


Authors: Omoniyi Pelumi and Joseph Esther O,

Students (LL.B), Faculty of Law, University of Lagos.

Global industrialization, efficiency in the factors of production and distribution of goods and services have significantly altered the primordial perception of a market from being a designated location for exchange of goods and services to boundless geography underpinned by daily human interactions in search for ways to meet their daily human needs. The advance of numerous technological advancement has led to a revolution in the world of commerce as there began the genesis of Electronic commerce. Electronic Commerce holds tremendous potentials as a formidable source of governmental revenue in the light of globalization and increasing automation of commercial transactions in Nigeria. However, national and states tax authorities are struggling to find mechanisms to collect the anticipated significant revenues derived from taxing e-commerce profits because the existing regime was set up to handle exchange of only physical goods and services. In some cases, they are even entirely oblivious of the prospect of revenue flow from such a source.

For clarity sake, digital goods can be described as downloaded digitized goods that are a near perfect substitute for goods sold on the physical media. They include: computer software (app), e-book, music etc.

The modest ambition of this research work is therefore to highlight the elements needed for a strong legal framework, analyse the legal challenges posed by cyberspace transactions that defy traditional conceptions of trade and provide recommendations.


In Nigeria, Digital Goods are outside the scope of Value Added-Tax. Section 2 of the Value Added-Tax Act 2007 provides that tax shall be payable on the supply of all goods and services. The point of contention is how to track transactions which relate to goods as stated in the challenges. For a legal framework to be the established for taxation of Digital goods, in Nigeria, free of these encumbrances; certain considerations have to be taken into cognisance.


The Taxation of digital goods should seek to be neutral and equitable between forms of electronic commerce and between conventional forms of commerce. Business decisions should be motivated by economic rather than tax considerations. Tax payers in similar situations, paying tax for digital goods; should be subject to similar levels of taxation.

Certainty and Simplicity

The Tax rules should be clear and simple to understand, so that taxpayers can anticipate the tax consequences in advance of a transaction online as errors can be detrimental, especially on the World Wide Web. This should include knowing when, where and how the tax is to be accounted.

Effectiveness and Fairness

Taxation of Digital Goods should produce the right amount of tax at the right amount of time. The potential for tax evasion and avoidance should be minimised while keeping counter acting measures proportionate to the risk involved.

Consumption Taxes

The rules for the taxation of digital goods should result in the taxation in the jurisdiction where consumption takes place and an international consensus should be sought on the circumstances under which supplies are held to be consumed in a jurisdiction because for the purpose of digitized products, taxes should be treated as consumption taxes and the supply should not be treated as supply of physical goods.

International Tax Arrangements and Cooperation

For a strong legal framework, we should look into principles that underlie the international norms that have developed tax treaties and transfer pricing (through the Model Tax Convention and the Transfer Pricing Guidelines). In order to understand the whole spectrum of ecommerce and digital transactions, it is highly advised that the drafters of the Legal Framework should look into not just International Agreements, but International Cooperation in order to ensure smooth taxation of digital goods.


The system of taxation should be flexible and dynamic to ensure that they keep the pace with technological and commercial developments.

Tax Collection and Control

We should ensure that appropriate systems are provided in the legal framework in place to control and collect the taxes and international mechanisms for assistance in the collection of the tax should be developed, including proposals for an insert of various languages.


Definition of Digital Goods by various States

On the global scene, especially in the United States, there have already been great strides to ensure taxing of digital goods and services but it has come at a heavy cost. The various American States have decided to create various definitions of digital goods and have stretched the borders of the parameters of digital goods in order to make profit by taxing such goods. In our country, with a teeming amount of states clamouring for more revenue allocation, it will come as no surprise when the 36 states start hyper-taxing digital goods in order to make profit from the various digital goods they would have espoused as levy worthy in their various states.

Technical Capability

A legal framework without proper implementation is dead. The Federation of Nigeria has made little or no improvements on its technical capabilities. With an average of 68 million internet users, Nigeria’s broad band speed of 322 kbps will not be enough to swiftly tax digital goods like our European and American counterparts that run an average speed of 47.32 mbps and 57mbps respectively. Albeit we have the fastest internet speed in Africa, it still does not suffice for quick tax transactions from a teeming population of citizens. Apart from that, an average of 100 million downloads occur on the Nigerian web space alone. An indigenous internet service provider cannot handle the amount of Value added taxes to be included on every download, and even though we decide to go forward and impute a tax on digital goods, it would most likely be a foreign company spearheading such

Value Added Tax Complex

Assuming you order a phone from Amazon, if there was a legal framework for taxation of digital goods, the phone would be liable to Value Added Tax in Nigeria, but Amazon is not a Nigerian company. Amazon cannot put a VAT on it and they are not even interested in putting one on it. If the phone is $199 the first thing that comes to mind is the Origination and Destination Principles in Tax which means the VAT should be collected at the destination but who collects it: Nigeria or Amazon? The Nigerian Tax Authorities will tell the purchaser that Amazon should have charged it and once you cross the Nigerian legal borders to inform Amazon of the VAT in place, the Nigerian Tax Authorities are powerless. The other alternative is charging the person who ordered the phone to collect the VAT. With millions of Nigerians purchasing from Amazon alone, the cost of attempting to collect the VAT will be greater than the Tax sought out in the first place.


For a legal framework to be established in order to govern the taxation of digital goods in Nigeria;

There has to be a refurbishment of the infrastructure of the internet providers in Nigeria and new ways to provide fast internet pathways in order to enable swift taxation and a lack of errors that citizens face in Nigeria today.

There has to be an assessment of the digital economy vis-a-vis the relevance of our tax statutes and a critical review.

The drafters of the framework have to critically appraise the digital terrain of the country and the digital market being shared within and outside the territory of Nigeria.

We need to examine the international scenario on tax and what movements with the legal framework will affect current treaty agreements.

There is a need to update our VAT Act provisions to cover taxation of Digital goods and discussions should be spurred in order to coordinate a tax policy on digital content and goods.

Finally, a legal tour of various states that tax digital goods should be carried out in order to ensure a strong legal framework.

Pelumi Omoniyi is a 400 Level Student of the Faculty of Law, University of Lagos; with a passion for International Law, Media Law and the interdisciplinary connections between the Law and Society. When  he is not knee-deep in books, you can find him Debating or MUNing.

Esther ‘O’ Joseph is a 400 Level Student of the Faculty of Law, University of Lagos. She is an easy going person who values people who are serious, hard-working and resourceful. Her likes are reading, researching and watching animes.

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