The rapid growth of e-commerce in Nigeria and many African countries in recent years has been remarkable. The ecommerce market recorded an estimated value of $12 billion in 2019. Then, finished 2023 as the 40th largest market globally. But, this growth brings increased competition due to the growing number of internet users selling online.
Additionally, the regulations governing e-commerce in Nigeria are now more stringent. Hence, running an e-commerce business in Nigeria requires the same effort as running a physical business.
You must understand the laws that apply to your business to avoid legal issues. This guide outlines the regulations guiding e-commerce businesses in Nigeria. It also covers the punishment for defiance and the rights of business owners in Nigeria.
Relevant Laws and Regulations Guiding e-commerce in Nigeria
Every e-commerce business in Nigeria must first register with CAC and NITDA. This is to ensure compliance with existing legal frameworks. These frameworks cover tax, intellectual property rights, payment platform laws, and other regulations.
Registering your business with the Corporate Affairs Commission (CAC) has several benefits.
- Your business gets legal recognition and protection.
- You enjoy the ease of electronic banking. For example, opening a business bank account and other banking procedures get easier.
- It serves as proof of business authenticity and a good reputation.
- This registration separates your business identity from that of the owner. So, the owner is not liable or responsible when liability arises from the business.
- It provides easy access to business loans and helps prevent any violation of the law.
NITDA created the National Electronic Commerce Council (NECC). The purpose is to manage e-commerce business operations in Nigeria. Registering with the NECC allows your online business to leverage policies and frameworks. They simplify international transactions for all e-commerce businesses operating in Nigeria.
Key E-commerce Legislation in Nigeria
● The Nigerian Communications Commission Act
The NCC strives to develop and regulate the telecommunications industry in Nigeria. The Nigerian Communications Commission (NCC) Act helps them achieve that goal. This act:
- regulates electronic commerce;
- protects consumers’ interests;
- licenses e-commerce service providers, and
- establishes a dispute resolution mechanism.
The law requires NCC licensing for every e-commerce service provider in Nigeria. Providers must also follow the guidelines and regulations set by the Commission. Failure to adhere to these rules may result in sanctions or license revocation.
● The Cybercrime (Prohibition, Prevention, etc.) Act
The Cybercrime Act is an essential legal framework governing ecommerce activities in Nigeria. This Act prohibits various online offenses, such as fraud, theft, impersonation, etc. It also outlines the penalties for those who engage in such criminal activities. This law governs both businesses (online and physical) and individuals.
● The Consumer Protection Council Act
The CPC of Nigeria is an agency responsible for safeguarding consumers’ interests. With the CPC Act, this regulatory body protects consumers from unethical business practices. Some of these unethical practices include false advertising and defective products. They can sanction businesses that violate consumers’ rights and take legal action.
Other key ecommerce regulations in Nigeria include:
- The Companies and Allied Matters Act (CAMA). This act provides the legal framework for company registration and regulation in Nigeria.
- The Electronic Transactions Act (ETA). This act recognizes and validates electronic signatures and transactions in Nigeria.
- The National Information Technology Development Agency (NITDA) Act. It empowers NITDA as the national regulatory body for IT development and regulation.
These laws and regulations ensure a fair business environment for e-commerce in Nigeria. Also, they promote ethical and transparent practices.
What is Taxation for e-commerce in Nigeria? Understanding VAT, Income Tax, and Others
The Finance Act 2020 and the Company Income Tax Act 2007 are two top e-commerce laws in Nigeria. These laws regulate various taxes in Nigeria. Here we provide more details about them and a few others:
● Value Added Tax (VAT) for E-commerce
In 2020, the Federal Inland Revenue Service (FIRS) introduced the Online Purchase Tax. This tax deducts 5% Value Added Tax (VAT) for online shopping purchases made locally. The tax gets deducted from local bank cards for every item purchased.
In 2022, the Nigerian government released Section 30 of the Finance Act to address Sections 10, 14, and 31 of the Act. This new law concerns Nigerians making purchases from non-resident digital companies.
The law requires citizens to pay VAT on items purchased from global companies. Experts predict Nigeria’s non-oil revenue will increase when this law gets implemented.
● Income Tax Implications
In 2021, President Muhammadu Buhari enacted a Finance Act. Now, the FIRS collects Company Income Tax from foreign digital companies in Nigeria.
This Act requires digital companies with a turnover of over N100 million Naira to pay a tax rate of 30%. For companies with a turnover between N25 million and N100 million, the tax rate is 20%. Companies with a turnover of less than N25 million do not have to pay taxes.
The Nigerian government also introduced the Significant Economic Presence (SEP) concept. This concept allows Nigeria to tax digital Non-Resident Companies (NRC) if:
- The target audience of their digital platform is Nigerians.
- The company delivers over NGN 25 million or equal from Nigeria in a year.
- The non-resident company registers a website with a Nigerian domain name (.ng). Or it hosts a website on servers located in Nigeria.
Aside from the tax laws discussed earlier, there are two other types of taxes to consider. They are customs duties and excise duties.
- Customs Duties: Only charged on imported goods. The rates vary from 5% to 35% based on the Harmonized Commodity and Coding System (HS Code).
- Excise duties: Effective June 1, 2022, excise duty increased to 20%. It now applies to telecommunication services, alcoholic beverages, cigarettes, and tobacco products.
Bottlenecks Around E-commerce Legislation in Nigeria
The e-commerce industry in Nigeria has experienced significant growth. But with growth come many challenges, particularly in the area of legislation. This is especially true for e-commerce legislation in Nigeria. Let’s explore some of these challenges.
- Inadequate enforcement. In Nigeria, the absence of strict enforcement of e-commerce regulations provides a loophole. Now, businesses can operate without fear of consequences.
- Complex regulations: Many businesses face difficulties in understanding and following complex regulations. This bottleneck hinders efficient day-to-day operation at the end of the day.
- Cost of compliance. High compliance costs pose a hindrance to small and medium-sized businesses. Business owners paying high registration and licensing fees affect their growth rate.
- Impact on e-commerce businesses. E-commerce legislation challenges have adverse effects. These challenges negatively impact the growth and profitability of companies operating in Nigeria.
Closing Thoughts
The current e-commerce legislation in Nigeria poses several challenges. Experts posit that a comprehensive overhaul of the existing laws is the way to go. The government and regulatory bodies should work together to ensure that:
- The rules get simplified:
- adequately enforced, and
- they do not impose any undue burden on online businesses in the country.
This collaboration will promote the growth and development of e-commerce in Nigeria. It will position Nigeria’s e-commerce sector for global competitiveness. Also, the e-commerce industry will significantly contribute to the nation’s economy.
Frequently Asked Questions
● What are the Benefits of Ecommerce?
Fast and easy transactions, swift accessibility, and zero market promotion stress. The picture below highlights more benefits.
● Why is Ecommerce Compliance Important?
Being fully compliant with all ecommerce regulations is not a choice but a necessity. It impacts anyone interacting with your company. So, failure to meet legal standards may lower customer confidence in your brand. It can also make vendors less inclined to collaborate with you.
Overall, it is an essential business need. It does not matter if you run a global corporation or a small business.
● What Can Happen If My Business Isn’t Compliant?
Your business faces various risks if it fails to abide by laws and regulations. Possible risks include lawsuits, government intervention, and criminal charges. Non-compliance can also lead to huge fines and workplace accidents. Publicly traded companies that lack transparency may even get sanctioned.
● What are the most important laws regulating e-commerce in Nigeria?
- The Federal Competition and Consumer Protection Act (FCCPA)
- Constitution of the Federal Republic of Nigeria 1999 (as amended)
- Cybercrimes (Prohibition, Prevention, etc.) Act 2015
- Evidence Act 2011, and
- Companies and Allied Matters Act 2020.
● How can I Set up My Business Online?
Start by incorporating it with the CAC. Then, register with the NITDA, Internal Revenue Services, and other relevant bodies. Register your business name domain name, and make sure to register with NIRA if it includes .ng. Set up a secure payment platform, and draft your privacy policy and terms and conditions (T&Cs).
● Do I have to Pay VAT on Every Product I Buy?
In Nigeria, you don’t have to pay VAT on all goods you buy through e-commerce platforms. Some goods exempt from VAT are:
- Medical and pharmaceutical products,
- Educational materials,
- Fertilizers,
- Essential food items and
- Baby products.
● Who can Sell Online?
Selling online is for anyone who has something valuable to offer. This can be a physical product or a service.
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Navigating the Legal Landscape of Ecommerce in Nigeria: Regulations and Compliance
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Explore the multi-faceted legal landscape of ecommerce in Nigeria. Discover the growth rate, key regulations, challenges, and potential.
