Financial Regulatory Authority's proposal seeks collaboration from banks and financial technology firms, aiming to facilitate the exchange of transaction data for the purposes of Value-Added Tax (VAT) surveillance.
The Federal Inland Revenue Service (FIRS) in Nigeria has launched a new initiative, the Transaction Monitoring System (TMS), aimed at enhancing tax compliance and visibility in the digital economy. This system requires banks, card schemes, fintechs, and payment service providers (PSPs) to integrate their transaction processing systems with a centralized FIRS portal.
Key Features of the TMS
The TMS is designed to provide real-time monitoring of VAT-eligible electronic transactions. Key features include:
- Real-time transaction routing: Financial institutions must route VAT-relevant transactions through the FIRS portal, allowing the tax agency to monitor payments where VAT might apply instantly.
- Data sharing via a secure admin portal: PSPs and other providers log in to the portal to share detailed data on transactions, including the VAT component, for both merchants and customers. This data is grouped and sent to the Transaction Monitoring System.
- Automatic invoice reconciliation and taxpayer assessment: The system helps FIRS automatically reconcile invoices and assess taxpayer VAT thresholds, promoting accuracy and reducing tax leakages.
- Centralized dashboard: FIRS gains a comprehensive, real-time view of VAT-eligible activities via a single dashboard.
- Refund support: A streamlined support channel is provided to handle refunds related to VAT transactions.
- Indirect tax enforcement: While FIRS uses the system to monitor transactions, tax collection itself is not done directly through the portal.
Enhancing Transparency and Fairness
The TMS is a significant modernization from traditional tax tracking methods, addressing challenges posed by the rapid growth of Nigeria's digital economy and the expanding volume of electronic payments. The initiative aims for greater transparency and fairness by making VAT compliance more visible and easier to enforce across all relevant digital payment players.
- PSPs are required to submit either the merchant's VAT or the PSP's VAT amount alongside the transaction data.
- The system is designed to foster a fair and transparent digital marketplace by monitoring VAT-eligible activities in real-time.
- All institutions must record both the VAT amount and the gross payment value for consumer payments.
Integration and Compliance
Financial institutions must register, integrate via APIs, and activate their dashboard to onboard the Transaction Monitoring System. The FIRS is relying on Section 25(4) of the FIRS Act to enforce its power with a 30-day notice to taxpayers. The FIRS is using encryption and AI-driven validation to maintain transaction integrity.
The data is then grouped accordingly and pushed to the Transaction Monitoring System. This approach represents a significant step towards addressing the challenges posed by the rapid growth of Nigeria's digital economy and ensuring fair and transparent taxation in the digital world.
[1] [Source] [3] [Source] [5] [Source]
- The Federal Inland Revenue Service's (FIRS) Transaction Monitoring System (TMS) requires fintechs, banks, and payment service providers (PSPs) to share detailed data on VAT-eligible transactions via a secure admin portal, promoting transparency in the digital economy.
- PSPs are expected to record both the VAT amount and the gross payment value for consumer payments within the Transaction Monitoring System to foster a fair and transparent digital marketplace.
- Financial institutions must integrate their transaction processing systems with the FIRS portal using APIs to onboard the Transaction Monitoring System, leveraging technology to ensure compliance with tax regulations in the growing digital finance landscape.
%20surveillance.){kind=link}