Taxation Issues Facing Nigerian Online Businesses

For many business owners, the moment they hear “tax,” their heart skips a beat. It’s not just because they don’t want to pay; it’s because they often don’t understand how it works, especially in the digital space. Unlike physical businesses with stores and visible assets, most online entrepreneurs operate virtually, from social media pages, websites, or even WhatsApp. So, the big question becomes:

How does the Nigerian tax system handle online businesses?

What taxes are you supposed to pay if you sell or offer services online?

And why do so many digital entrepreneurs struggle to comply?

In this article, we’ll unpack everything you need to know about taxation issues affecting Nigerian online businesses. You’ll understand the laws, challenges, and even practical tips to help your brand stay compliant while still growing profitably.

Overview of Nigeria’s Tax System

To understand the taxation issues online businesses face, we first need to understand how the Nigerian tax system actually works. Nigeria operates a federal tax structure, which means taxes are collected at three levels of government:

1. Federal Government: through the Federal Inland Revenue Service (FIRS)
2. State Governments: through the State Boards of Internal Revenue (SBIRs)
3. Local Governments: which collect certain minor levies and rates

Each level has its own powers, and online business owners may need to deal with more than one of them, depending on how their business is registered and where they operate.

At the federal level, the FIRS handles key taxes such as:

• Company Income Tax (CIT)
• Value Added Tax (VAT)
• Tertiary Education Tax (TET)
• Withholding Tax (WHT)

Meanwhile, state governments handle:

• Personal Income Tax (PIT) for individuals and sole proprietors
• Business premises levies

And the local governments handle smaller charges like market levies or radio/television licenses.

The challenge, however, is that most online entrepreneurs don’t fit neatly into these categories. A dropshipper in Lagos might be selling to customers in Abuja or Port Harcourt. A digital marketer might serve clients abroad and get paid in dollars. So, who taxes them, Lagos or Abuja? The FIRS or the state?

This lack of clarity is one of the biggest sources of confusion for Nigerian online business owners.

What is Taxation?

Taxation is simply the process through which a government collects money (taxes) from individuals, businesses, and organizations to fund public services and support national development.

In simpler terms, taxation means you contribute a small part of your income or profit to the government, and in return, the government uses that money to build roads, provide security, improve education, healthcare, and other essential services.

Imagine you run a small online store or offer digital marketing services in Nigeria. Each time you make a profit, the government expects you to pay a small percentage of that income as tax. That money doesn’t disappear, it helps keep the country running. It’s used to:

• Pay for electricity projects
• Maintain infrastructure like bridges and roads
• Fund schools and hospitals
• Support small business development programs

So, in a sense, taxation is a shared responsibility, everyone contributes so that society as a whole benefit.

Why Taxation Matters for Online Businesses

Now, you might be thinking: “Why should I even bother about taxes if I’m just running an online hustle?”

That’s a fair question, but the truth is, taxation isn’t just about paying money to the government. It’s about legitimizing your business and building trust with customers, investors, and even payment processors.

Here’s why taxation matters more than you think:

1. It Makes Your Business Legitimate: Once your business is registered with the Corporate Affairs Commission (CAC) and you have a Tax Identification Number (TIN), your brand becomes legally recognized. This makes it easier to open a business bank account, access funding, or work with corporate clients who require tax compliance.

2. It Builds Customer Trust: Modern Nigerian consumers are more aware than ever. They trust brands that are transparent and legitimate. When your invoices include tax details or your website displays your registered business information, it communicates credibility.

3. It Helps the Economy Grow: Every tax paid contributes to infrastructure, education, healthcare, and digital inclusion, the very systems that allow online businesses to thrive.

4. It Prevents Legal Penalties: Failure to comply with tax laws can result in fines, account freezes, or even business closure. FIRS and state tax boards are now tracking online payments through banks and fintech platforms, so it’s becoming harder to hide.

Tip: Paying your taxes isn’t just an obligation, it’s a business strategy. It helps you operate confidently and gives you access to opportunities like government grants, CBN intervention funds, or big corporate partnerships.

Types of Tax That Affect Online Businesses

Many online entrepreneurs in Nigeria don’t know which specific taxes apply to them. Here are the main types of taxes that can affect your online business, depending on how you operate:

1. Value Added Tax (VAT): This is a 7.5% tax charged on most goods and services in Nigeria. If you sell digital products (like eBooks or courses) or physical items (like clothing, gadgets, or food), you’re required to charge VAT on each sale and remit it to the FIRS monthly.

Example: If you sell an item for ₦10,000, your VAT portion is ₦750. You collect ₦10,750 from your customer, keep ₦10,000 as your revenue, and remit ₦750 to the FIRS.

Note: Even if your business is small, the moment your annual turnover exceeds ₦25 million, VAT registration becomes mandatory.

2. Company Income Tax (CIT): This tax applies to registered companies in Nigeria and is based on profits, not revenue.

• Small companies (turnover below ₦25m): 0% CIT
• Medium companies (₦25m–₦100m): 20% CIT
• Large companies (above ₦100m): 30% CIT

So if your online business is registered as a Limited Liability Company, you’ll need to file annual returns and pay your CIT to FIRS.

Many online entrepreneurs make the mistake of thinking their business is “too small” for tax. But even filing nil returns (when you make no profit) is required, it keeps you compliant and avoids penalties.

3. Personal Income Tax (PIT): If you’re a sole proprietor, freelancer, or influencer, your tax obligation falls under the Personal Income Tax Act (PITA) and is managed by the State Internal Revenue Service (SIRS) where you reside.

You pay tax based on your personal income bracket, ranging from 7% to 24%.

So whether you earn through affiliate marketing, content creation, or freelancing, you’re legally required to file personal income tax annually.

4. Withholding Tax (WHT): Withholding tax acts as a form of tax prepayment. For instance, if a client pays you ₦100,000 for your services, they might deduct 5% (₦5,000) as withholding tax and remit it directly to FIRS or SIRS on your behalf.

You can later use that ₦5,000 as a credit when filing your final tax returns.

In summary:

Taxation Issues Facing Online Businesses in Nigeria

Despite the laws and systems in place, many online businesses still struggle to comply with tax obligations. Let’s explore why:

1. Lack of Clear Tax Regulations for Online Businesses

One of the biggest problems facing Nigerian online businesses today is the lack of clear, up-to-date tax regulations that address the realities of the digital economy. Most of Nigeria’s tax laws including the Companies Income Tax Act and Value Added Tax (VAT) Act were created long before digital entrepreneurship became mainstream.

This gap means there’s no distinct legal definition for what qualifies as an online business, or how exactly such businesses should be taxed. For example, should a social media influencer who earns through Instagram promotions pay the same type of tax as a registered eCommerce brand? Should freelancers who receive payments from foreign clients pay VAT? These questions are not clearly answered by the existing laws.

As a result, many small online businesses operate in uncertainty, unsure of what they owe or how to stay compliant. Some end up avoiding taxation completely out of confusion, while others overpay out of fear of being penalized.

This ambiguity also affects foreign companies offering digital services to Nigerians, such as Netflix, Facebook Ads, or Google. The Federal Inland Revenue Service (FIRS) has tried to bridge this gap through new guidelines like the Significant Economic Presence (SEP) rules and Digital Service Taxes (DST), but implementation is still at an early stage.

For local entrepreneurs, this uncertainty can be frustrating. It makes planning difficult, increases the cost of doing business, and discourages some startups from registering formally.

Until Nigeria develops a comprehensive digital taxation framework, online businesses will continue to face confusion and inconsistency. At telaHosting, we believe a clearer policy will not only simplify compliance but also encourage more people to take their online ventures seriously and grow within the formal economy.

2. Double Taxation

Imagine paying the same tax twice — first to the Federal Government and then to your State Government. Unfortunately, that’s the reality for many online business owners in Nigeria. This issue, known as double taxation, happens because of overlapping responsibilities between the Federal Inland Revenue Service (FIRS) and various State Internal Revenue Services (SIRS).

For instance, a small business selling beauty products online might be taxed by FIRS for VAT and Company Income Tax, while the state revenue office demands Pay-As-You-Earn (PAYE) or Business Premises Levies. Both agencies often claim jurisdiction, and most entrepreneurs, eager to avoid trouble, they just pay both.

This overlap doesn’t just drain profits; it also discourages compliance. Many business owners feel like they’re being punished for trying to follow the rules. In extreme cases, some resort to shutting down or avoiding registration completely.

A harmonized tax system where federal and state agencies share data and responsibilities could solve this problem. That’s why there have been discussions about creating a Single Tax Identification Portal that links both FIRS and SIRS databases.

3. Low Tax Awareness and Education

Most small online business owners in Nigeria don’t really understand taxation. And it’s not their fault. There’s little to no structured education on taxes for entrepreneurs, especially in the digital space.

If you ask ten online sellers on Instagram or Jumia about “Withholding Tax” or “Value Added Tax,” at least half won’t be able to explain how it works or when to pay it. This lack of awareness leads to accidental non-compliance, where business owners unknowingly break tax laws, not out of defiance, but ignorance.

Unfortunately, ignorance doesn’t protect you from penalties. Once your business starts to grow and attract attention, tax authorities may audit your records and any unpaid tax can lead to fines or legal action.

The Federal Inland Revenue Service (FIRS) has made progress by creating TaxPro-Max, an online portal where businesses can register, file, and pay taxes digitally. But the platform can be intimidating for beginners who aren’t familiar with accounting or financial terms.

What’s needed is practical tax education — simple, localized training programs that teach online entrepreneurs how to register their business, calculate tax, and submit returns correctly.

4. Complex Registration and Filing Process

You’ve probably heard this before: “The process is too stressful!” That’s the most common complaint when it comes to tax registration and filing in Nigeria.

Although the Federal Government has tried to simplify things with online portals like FIRS TaxPro-Max, the system still feels complicated to many entrepreneurs. Forms are long, requirements are often unclear, and the terminology can be confusing if you don’t have a background in finance or law.

For example, registering for a Tax Identification Number (TIN) requires uploading business registration documents, CAC certificates, and valid identification. Once you get your TIN, you then have to file monthly VAT returns, annual company income tax, and possibly state levies, all using different platforms or offices.

Now imagine a small business owner in Lagos who just sells clothes via Instagram. To her, this process feels unnecessary and intimidating. That’s why many digital entrepreneurs simply ignore tax registration — not because they want to cheat the system, but because it feels like a mountain of paperwork.

To make matters worse, inconsistent internet connectivity or system downtime can make the process frustrating. This complexity creates a barrier for new entrepreneurs who might otherwise be willing to comply.

5. Informality of Online Businesses

A large number of online businesses in Nigeria operate informally, meaning they’re not registered with the CAC and have no TIN. These are people selling via WhatsApp, Instagram, or TikTok, offering services or products without any official structure.

This informality makes it difficult for tax authorities to track, regulate, or collect taxes fairly. On the flip side, it also limits the growth potential of these businesses. Without registration, they can’t open business bank accounts, access loans, or work with larger brands that require formal documentation.

Many small entrepreneurs worry that registering will lead to heavier taxes, constant audits, or unnecessary government interference. Others simply find the process confusing or costly.

However, staying informal also means missing out on opportunities. Once your business is registered, you can access grants, business insurance, and even government support programs. Plus, when you comply with tax laws, your business becomes more credible to customers and partners.

6. Poor Digital Infrastructure

Taxation in Nigeria is moving digital, which is great in theory, but it assumes that everyone has consistent internet access and knows how to use online platforms effectively. Unfortunately, that’s not the case.

For example, an entrepreneur in Abuja or Lagos may be able to log in to the FIRS TaxPro-Max portal easily, but someone running a small online store from Kaduna or Uyo might face poor connectivity or constant power cuts. Without stable electricity or internet, submitting tax returns becomes a frustrating and time-consuming process.

And then there’s the issue of the government’s own digital platforms. Sometimes, these tax portals crash or fail to load properly, leaving users stuck halfway through filing their returns. Add that to the lack of timely customer support, and it becomes understandable why many people give up trying.

To encourage tax compliance, Nigeria needs to invest more in reliable digital infrastructure — faster broadband, stable power supply, and efficient online tax systems. If the process of paying taxes becomes as simple as making an online transfer, more people will be willing to comply.

7. Unclear Jurisdiction for Cross-Border Transactions

Many Nigerian online businesses today don’t just sell locally; they sell globally. Whether you’re a digital marketer with international clients, an e-commerce store that ships abroad, or a freelancer earning through platforms like Upwork or Fiverr, you’re part of a cross-border digital economy.

If you’re earning in dollars from a U.S. client, should you pay tax in Nigeria or the U.S.? And if your customers are in other African countries, how do you handle Value Added Tax (VAT) or Digital Service Taxes (DST)? The truth is, there are still no clear rules guiding these cross-border digital transactions.

Nigeria’s tax system was built around physical presence — meaning, if you had an office or store in the country, you were taxed. But online businesses don’t necessarily need physical offices anymore. This has made tax enforcement complicated for both the government and digital entrepreneurs.

For instance, the Significant Economic Presence (SEP) rule introduced by FIRS tries to address this by taxing foreign companies that make money from Nigerians even without a local office. However, for local online entrepreneurs earning internationally, the guidance remains vague.

To solve this, Nigeria needs updated digital taxation treaties with other countries and clearer definitions of what qualifies as taxable income from foreign transactions.

Until then, many Nigerian online business owners remain unsure whether they’re overpaying, underpaying, or not paying the right kind of tax at all. At telaHosting, we believe awareness and clarity are key. That’s why we encourage entrepreneurs to seek professional advice and stay informed because cross-border business success should never be hindered by confusion.

8. Absence of a Standardized Digital Tax Policy

Over the past few years, the government has been working on Digital Service Tax (DST) rules and amendments to the Finance Act, but these efforts are still in transition. As a result, different agencies often interpret tax obligations differently.

For example, one agency may tell you to pay VAT on digital products, while another claims you’re exempt. A digital marketer might be taxed differently from a software developer, even though both operate online. This inconsistency makes it almost impossible for small businesses to plan their finances accurately.

Without a standardized policy, there’s no level playing field. Big foreign tech giants like Google or Netflix can afford legal teams to handle compliance, but local Nigerian startups and freelancers struggle to keep up.

A well-structured digital tax framework would do more than just simplify tax collection — it would build trust between the government and online entrepreneurs. Businesses would know exactly what to pay, when to pay, and how to pay, without fear of unexpected penalties.

9. Difficulty in Tracking Online Sales

If you’ve ever sold something online, you know how diverse digital transactions can be. Payments can come through bank transfers, USSD, Paystack, Flutterwave, or even direct deposits. Some customers pay in cash on delivery, while others pay through crypto.

This variety makes it hard for tax authorities to track real revenue, especially when most sales happen on informal platforms like WhatsApp, Facebook Marketplace, or Instagram.

Since many of these transactions happen outside official eCommerce websites, there’s little digital record for the government to verify income. Some entrepreneurs also intentionally avoid using traceable payment channels to stay off the radar.

The problem is, this lack of transparency leads to unfair taxation. Some people underpay or don’t pay at all, while others, usually the more organized businesses — end up carrying most of the tax burden.

What Nigeria needs is a digital tax tracking system that works hand in hand with fintech platforms. For example, FIRS could integrate tax reporting into popular payment gateways like Paystack and Flutterwave, allowing automated tax calculations and remittances.

10. Fear of Over-Taxation

The word “tax” scares a lot of people. And in Nigeria, that fear is often justified. Many online business owners avoid registration simply because they’re afraid the government will over-tax them once they show up in the system.

This fear comes from years of experiences where entrepreneurs were suddenly hit with multiple levies, audits, or backdated tax bills they didn’t understand. Instead of seeing tax compliance as a growth step, they see it as a trap. Unfortunately, this mindset keeps thousands of online businesses informal. They miss out on the benefits of formalization, like business bank accounts, access to loans, and partnerships with big brands.

The government needs to do more to rebuild trust by being transparent about how tax rates are calculated and how collected funds are used. When business owners see tangible benefits from their taxes, like better infrastructure or digital tools, they’ll be more willing to comply.

Importance of Record Keeping and Compliance

If you run an online business in Nigeria, one of the smartest things you can do for yourself is to keep accurate records. Good record keeping isn’t just about organization, it’s your first line of defense during tax assessments and audits.

Here’s why it matters so much:

1. Helps You Track Income and Expenses: Whether you’re a freelancer, e-commerce seller, or service provider, you should be able to clearly show how money flows in and out of your business. Keep copies of all invoices, receipts, and online payment confirmations.

If your business runs on platforms like Paystack, Flutterwave, or Stripe, download monthly statements. These records are crucial when calculating taxes or proving income to the FIRS or your state tax board.

2. Makes Filing Easier: When it’s time to file taxes, having well-organized records helps you know exactly what to report, no guesswork, no stress. You’ll know how much VAT you collected, what expenses to deduct, and what profits to declare.

3. Protects You from Penalties: Tax authorities may request an audit or proof of income. Without proper records, you could face unnecessary penalties or be accused of tax evasion. But with receipts, invoices, and transaction logs properly kept, you can defend yourself easily.

4. Builds Credibility: Good financial records make your business more attractive to investors, partners, and clients. It shows professionalism and accountability.

By keeping your records clean, you not only make compliance easier but also prepare your business for sustainable growth.

How to Register and File Taxes Online in Nigeria

Many online entrepreneurs think tax registration is a complicated process — but the truth is, Nigeria has made significant strides in digital tax administration. You can now register, file, and pay taxes online without ever visiting a tax office.

Step 1: Register Your Business with CAC: Before you can register for tax, your business needs a legal identity. Visit the Corporate Affairs Commission (CAC) website to register your business name or company. Once approved, you’ll receive a CAC certificate.

Step 2: Get a Tax Identification Number (TIN): With your CAC certificate, visit the FIRS website or a nearby tax office to obtain your TIN. Some states (like Lagos and Abuja) allow online registration for personal TINs as well.

Step 3: Open a Business Bank Account: You’ll need your TIN to open a corporate bank account. This helps separate your personal and business transactions, which is essential for tax filing.

Step 4: File Taxes Electronically: FIRS now has an online platform called TaxPro-Max, where businesses can file VAT, CIT, and WHT returns.

You can:

• Submit returns online
• Generate payment receipts
• Track previous filings

For individuals, most state tax boards also have online portals. For example:

• LIRS eTax Portal (Lagos)
• FCT IRS e-Services (Abuja)

Step 5: Keep Track of Filing Deadlines: Late filing attracts penalties. For instance, failing to file VAT returns by the 21st of the following month can lead to fines.

Conclusion

Taxes aren’t the most exciting part of running a business. But if you want your online venture to grow sustainably and attract serious clients or investors, you can’t ignore them.

The Nigerian tax landscape may seem complex, but with a little knowledge and organization, you can stay compliant without stress. From VAT and CIT to PIT and DST, understanding your obligations helps you operate confidently in the digital space.

And remember, being tax-compliant isn’t just about avoiding penalties, it’s about proving your professionalism and credibility. It’s about saying to your customers, “I’m here for the long term.”

FAQs

1. Do I need to pay tax if I run a small online business on Instagram?

Yes. Once you start earning consistently, you’re expected to register with CAC and obtain a TIN. Even if your revenue is below ₦25 million, you should still file returns to stay compliant.

2. What’s the difference between FIRS and SIRS?

FIRS handles federal taxes like VAT and Company Income Tax, while SIRS handles state taxes like Personal Income Tax for individuals and small businesses.

3. Can I register for tax without a CAC certificate?

No. You need a CAC certificate to obtain a business TIN and open a business bank account.

4. What happens if I don’t pay taxes?

You risk penalties, audits, or even account restrictions. FIRS can track digital payments through banks and fintechs, so compliance is strongly advised.

5. How can telaHosting help business with compliance?

telaHosting provides secure, data-compliant hosting and easy integration with accounting and payment systems, making it easier to keep records, generate invoices, and stay compliant with Nigerian tax laws.